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Full text of "The economics of petroleum"

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THE 

ECONOMICS OF PETROLEUM 



BY 

JOSEPH E. POGUE 

Consulting Engineer 

Co-author of America's Power Resources; The Energy 
Resources of the United Stales; Prices of Petro- 
leum and Us Products during the War; etc. 




NEW YORK 

JOHN WILEY & SONS, Inc. 

London: CHAPMAN & HALL, Limited 
1921 



Copyright, 1921, 
By JOSEPH E. POGUE 



press or 

BRAUNWORTH ft CO. 
BOOK MANUFACTURERS 
BROOKLYN, N. Y. 



TO 

Girate $cebltam |3o0uc 



Digitized by the Internet Archive 
in 2013 



http://archive.org/details/economicsofpetOOpogu 



PREFACE 



The purpose of this book is to present, in perspective, the more 
important economic facts relating to petroleum; to interpret the 
changes that are rapidly taking place in this field; and to project 
the trend of these changes into the immediate future. The book is 
designed to be of service to the business man, the engineer, and the 
practical worker, not only in the petroleum industry, but in those 
industrial fields dependent upon the products of petroleum as well. 

While the activities dependent upon petroleum are indispensable, 
the reserves of this substance are limited in size. And the rate at 
which the supply may be brought to the surface is falling behind the 
rate at which the demand for oil is growing. These conditions have 
already called for large imports from Mexico. More recently, they 
have directed the attention of the United States toward other 
foreign supplies to supplement the domestic output. In the years 
ahead, they may be expected to bring on far-reaching changes in 
the technology and economic structure of the petroleum industry, 
changes which may even go so far as to influence strongly the inter- 
related industrial fields dependent upon petroleum. Many of these 
changes, in fact, have already registered their initial effects during 
the past five years. 

Irrespective of the quantity of recoverable petroleum under- 
ground, the output of this country must inevitably decline. This 
decline, however, may be expected to be a slow recession over a con- 
siderable number of years, rather than a sharp and sudden curtail- 
ment. The peak of production was possibly reached in June of 1921. 
That this record will be substantially bettered is unlikely, although 
it can doubtless be surpassed if the price of crude petroleum advances 
sufficiently. But whether the output of petroleum in the United 
States has actually or almost reached its maximum rate is immaterial. 
Likewise, the exact size of the unmined reserve is of secondary 
importance. The point to be emphasized is the coming necessity 
for increasing the over-all efficiency of petroleum — a problem that 
concerns not only the producers and refiners of oil but the manu- 



vi PREFACE 

facturers of appliances that consume its products, as well. From 
now on the tendency will be to use relatively less of the material 
itself, but to put greater effort into increasing the service value 
extracted from it. 

In the pages following, some departures have been made from 
the usual methods of presentation. The statistics, for the most 
part, are given in large units — an expedient that greatly simplifies 
their presentation and utilization, without any sacrifice of their 
significance. In general, the unit has been so chosen that the data 
could be expressed by three digits, with a decimal point if necessary, 
the third digit being raised one if the fourth digit in the original 
listing was 5 or over. Special emphasis is placed upon graphic 
analysis of the statistical data, and a number of relatively new types 
of charts have been introduced. The ratio chart, in particular, has 
been extensively employed. The graphic presentation has been so 
developed that the reader may gain a perspective of the petroleum 
industry from a study of the charts alone, without recourse to the 
text. The percentages and index numbers were calculated by means 
of a 10-inch slide rule and are precise within the limits of that instru- 
ment. The statistical tables have been doubly checked from the 
original data and it is to be hoped are reasonably free from errors. 

In the preparation of this book, the writer has been aided by 
information published, or especially provided, by many organiza- 
tions. He is particularly indebted to the following: American Gas 
Association; American Petroleum Institute; Automotive Indus- 
tries; Federal Trade Commission; National Automobile Chamber 
of Commerce; National Petroleum News; Oil and Gas Journal; 
Oil, Paint, and Drug Reporter; Sinclair Consolidated Oil Corpora- 
tion; Smithsonian Institution; Society of Automotive Engineers; 
Society of Western Engineers; Standard Oil Company (New Jersey); 
Tide Water Oil Company; U. S. Bureau of Foreign and Domestic 
Commerce; U. S. Bureau of Mines; U. S. Fuel Administration; 
U. S. Geological Survey; U. S. National Museum. 

A large number of individuals have contributed to this under- 
taking in a substantial manner. Many acknowledgments are made 
throughout the text. In addition, the writer wishes to express his 
cordial appreciation to: Ralph Arnold, Mowry Bates, Philip Brasher, 
E. J. Buchaca, F. G. Clapp, Northrop Clarey, Thomas Cox, E. W. 
Dean, E. De Golyer, J. A. Doyle, M. C. Ehlen, L. M. Fanning, 
V. R. Garfias, Chester G. Gilbert, George B. Gifford, Robert B. 
Harper, Frank Howard, Arthur D. Little, Isador Lubin, Van H 
Manning, H. F. Mason, R. S. McBride, Chester Naramore, C. C. 
Osbon, W. F. Parish, Raymond Prescott, M. L. Requa, George E. 



PREFACE Vil 

Richardson, E. G. Sievers, Walter C. Teagle, David White, and 
Samuel S. Wyer. To Grace Needham Pogue the writer is indebted 
for the preparation of the manuscript for the printer, a critical 
reading of the proofs, and innumerable suggestions in the course of 
the work. Special acknowledgment is also due to George Taylor 
and his associated artisans for their effective work in engraving the 
charts. 

The writer is fully aware of the difficulties of the task which he 
has attempted to perform, and he will welcome constructive criti- 
cisms from any source. He offers no apology for the projection of 
present trends into the future. " The prime function of a science is 
to enable us to anticipate the future in the field with which it has to deal." 

Joseph E. Pogue. 

New York City, 
Sept. 15, 1921. 



CONTENTS 



PAGE 

Preface v 



CHA 



CHAPTER 

I. The Economic Organization of the Petroleum Industry. ... 1 

>^ II. The Resource Situation 12 

^ III. The Trend of Oil-field Development 27 

1 IV. Trend of Oil Production 48 

\, V. The Transportation of Crude Petroleum 64 

VI. Trend of Refinery Practice 75 

* VII. Analysis of Refinery Capacity 90 

VIII . The Outlook for Oil Refining 104 

IX. Gasoline 110 

X. Kerosene 130 

XI. Fuel Oil 142 

XII. Lubricating Oils 164 

XIII. Petroleum By-products 183 

XIV. Natural Gas and Natural-gas Gasoline 195 

^*0 XV. Marketing of Petroleum Products 212 

^^ XVI. Analysis of the Exports of Petroleum Products 222 

n^XVII. Prices of Petroleum and Its Products 233 

XVIII. Relation between Price and Production of Crude Petroleum 253 
XIX. The Bearing of Automotive Transportation Upon the 

Oil Industry 262 

XX. The Economic Significance of Cracking 272 

XXI. Composite Motor-fuels 279 

XXII. The Motor-fuel Problem 285 

XXIII. The City-gas Problem 300 

^ XXIV. International Aspects of Petroleum 312 

XXV. Mexico as a Source of Petroleum 320 

XXVI. The Relation of the Coal Industry to the Oil Industry. . . . 330 

XXVII. Oil-shale 336 

XXVIII. Full Utilization of Petroleum 342 

XXIX. The Function of Statistics in the Petroleum Industry. . . . 353 



IX 



J 



ECONOMICS OF PETROLEUM 



CHAPTER I 



THE ECONOMIC ORGANIZATION OF THE PETROLEUM 

INDUSTRY 

The petroleum industry is distinguished among industrial activ- 
ities in its form as a nearly self-contained economic entity embracing 
the four related functions of production, transportation, manufac- 
turing and marketing . The economic organization of the petroleum 
industry, as differentiated from its financial structure, is shown 
graphically in Fig. 1. 

The production of petroleum has to do with the discovery, devel- 
opment, and exploitation of oil-bearing territory. It involves the 
incidental output of considerable quantities of natural gas, a source 
of supplementary revenue and productive of some gasoline which is 
blended with the ordinary supply of refinery gasoline. The pro- 
duction of crude petroleum deals with a wasting asset, a mobile and 
illusive substance, a product subject to rapid and sensational develop- 
ment; and takes on in consequence a unique and specialized char- 
acter which sets it distinctly apart from industrial activities in 
general. As time goes on, the field of petroleum production may 
be expected to enlarge its scope and include the manufacture of oil 
from volatile coals and oil-shale. 

The transportation of crude petroleum, faced with the problem 
of moving a bulky liquid raw material, has grown along individual 
lines, with the development of pipe-lines and tank-steamers to 
facilitate the efficient movement of this substance. Petroleum is 
handled in almost entire independence of the usual agencies of 
transport. 

The refining of crude petroleum is a manufacturing enterprise 
involving the principles of chemical control and multiple production. 
Through the agency of pipe-line and tanker transportation, the sub- 
stantial portion of the refining activity has been enabled to grow up 
in locations readily accessible to the markets for petroleum products. 



ORGANIZATION OF THE PETROLEUM INDUSTRY 




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INTEGRATION OF THE INDUSTRY 3 

The marketing of petroleum products has been carried on largely 
by the refining interests, and in order to maintain an outlet for an 
ever-increasing flow of these materials, this phase of the industry 
has been extensively cultivated and highly perfected. 

The rapid exploitation of the petroleum resource has led to the 
attainment of a notable degree of competence in transportation and 
distribution, but, in the presence of an abundance of raw material, 
production and refining for the most part have developed in a 
wasteful and improvident manner. Conditions ahead, however, may 
be expected to bring a growing measure of efficiency into the realms 
of production and refining. 

Integration of the Industry. — In a fundamental economic sense, 
the petroleum industry is highly integrated and an activity that 
would be expected from a purely physical standpoint, to function 
with maximum efficiency as a natural monopoly. The tendency 
toward financial integration in keeping with the underlying economic 
structure was effectively displayed during the earlier decades of the 
development, culminating in a country-wide business organization, 
the Standard Oil Company of New Jersey. The drift toward finan- 
cial integration, however, met the opposition of public economic 
policy, and in 1911 the Standard Oil Company was financially disin- 
tegrated by a judgment of the Supreme Court. 

At the present time, the petroleum industry is composed of the 
original units of the Standard Oil Company of New Jersey, operating 
throughout the United States without financial collusion though 
with a certain degree of economic consistency arising from the 
fundamental economic integration which could not be destroyed by 
legal pronouncement; and of a larger number of other dissociated 
units, including roughly about half of the entire industry. The 
companies originally comprising the Standard Oil Company of New 
Jersey are commonly referred to as the Standard companies, or 
Standard group; while all other companies are spoken of as the 
Independents, or Independent group. 

Viewed from another angle, the petroleum industry is composed of 
large units representing corporate enterprises with extensive aggre- 
gates of capital, and small units of more restricted resources and 
scope. The large units include companies which produce, transport, 
refine, and market, as well as those which undertake a less complete 
range of activities. The small units usually operate in only one of the 
four major divisions. In 1919 according to the Federal Trade Com- 
mission, 1 21.3 per cent of the crude petroleum output of the United 

1 Summary of the report of the Federal Trade Commission on the Pacific 
Coast Petroleum Industry, April 7, 1921. 



4 ORGANIZATION OF THE PETROLEUM INDUSTRY 

States was produced by nine' Standard companies; 38.1 per cent by 
large independent companies of over 1 million barrels output; 
and 40.6 per cent by smaller companies and companies not reporting 
to the Commission. Of the total production of the large companies, 
25.6 per cent was credited to companies engaged in production 
solely; and 74.4 per cent, to companies which also operated refineries. 
In regard to the crude petroleum refined in 1919, companies belong- 
ing to the Standard Oil group handled 43.8 per cent; large independent 
companies, 41.1 per cent; and companies not reporting to the Fed- 
eral Trade Commission, 20.2 per cent. Figures covering 84 per 
cent of the refinery consumption of the country in 1919 show that 
38.3 per cent of the crude run to stills was produced by the refining 
companies or affiliated interests. Of the trunk pipe-line mileage, 
approximately 69 per cent in 1920 was in the hands of the Standard 
companies and practically all of the remainder belonged to large 
independent interests. 

Size of the Industry. — The magnitude of the petroleum industry 
is difficult to convey accurately in statistical terms. Table 1 gives 
a number of measurements, some amounting merely to rough esti- 
mates, drawn from a variety of sources. 

Table 1. — The Magnitude of the American Petroleum Industry 



No. of producers of crude petroleum, Jan. 1, 1921 . 
No. of producing oil-wells, Oct. 31, 1920 


4,048 
258,600 

443 million barrels 
105 " 

91 

45,500 

5,215,961 

415 

1,888,000 barrels 
432 
20 billion gallons 

1,578 
137,000* 

3 billion dollars 
658 

6 billion dollars 


Production of crude petroleum, 1920 


Imports of crude petroleum, 1920 


Pipe-line companies, 1920 


No. miles of pipe-lines, 1920 


Tonnage of tank-steamers, Jan. 1. 1921 


No. of refineries, Jan. 1, 1921 


Daily capacity of refineries, Jan. 1, 1921 

No. of manufacturers of natural-gas gasoline, 1921 . 
Output of petroleum products, 1920 


No. of compounders, marketers, and jobbers, 1920 

No. of tank-cars in operation, Jan. 1, 1921 

Estimated value of petroleum products sold in 1920 
Manufacturers and dealers in oil equipment 

Estimated investment in American petroleum in- 
dustry 





* Includes tank-cars of all kinds in United States and Canada. 



INVESTMENT IN THE INDUSTRY 



5 



It is apparent that the petroleum industry, is one of the major 
industrial activities of the country. Moreover, it represents the fuel 
support of automotive transportation and supplies the lubricants 
essential to the operation of all industrial activities, and hence under- 
writes the progress of modern civilization. The total wealth of the 
country, including real estate, railroads, mines, public utilities, and 
so on, is estimated to be in excess of 200 billion dollars, which indi- 
cates that the estimated investment represented by the petroleum 
industry runs close to 3 per cent of the country's total wealth. 

Investment in the Industry. — A rough appraisal of the investment 
in the American petroleum industry has been made by Ross, 1 and 
the figures thus calculated are shown in Table 2. It should be borne 
in mind that the figures are approximations and useful merely as 
indications of the magnitude of the industry as measured in financial 
terms. 

Table 2. — Estimate of the Investment in the American Petroleum 
Industry in 1920 (After Ross) 



Items 


Millions of Dollars 


Production 


3542 
400 
250 

1795 
660 
394 

370 


Pipe-lines 


Tankers 


Refineries 


Marketing equipment 


Crude inventories 


Refined inventories . 


Total 


7411 



The estimate of production represents the present value of future 
production, as based on the barrel-day theory of valuing oil proper- 
ties. According to this method, the settled daily production is 
multiplied by an arbitrary number of dollars called the barrel-day 
price, which is usually the prevailing price times one thousand. 
Needless to state, such a method when applied to the whole country 
yields a highly generalized result. This method of valuation takes 
no account of increases in value due to come in respect to a deplet- 
ing resource, although such increments will tend to be offset by 
increasing production costs, and by the time element involved in a 

^ee Victor Ross, The Evolution of the Oil Industry, 1920, pp. 153-159. 



6 ORGANIZATION OF THE PETROLEUM INDUSTRY 

slowing output after the maximum rate is attained. The present 
value of future production represents an investment of the petroleum 
industry in a qualified sense only, since upwards of 90 per cent of the 
oil acreage in the United States is leased from private owners. 

The actual investment in the crude petroleum business may also 
be estimated on the basis of figures published by the Federal Trade 
Commission, showing that the capital stock, surplus, and funded 
debt of 82 companies producing 62 million barrels of crude petroleum 
in 1919 was 366 million dollars, or 5.9 dollars per barrel of annual 
output. If this ratio is applied to the total 1919 production of 378 
million barrels, the total estimated investment in the crude petro- 
leum business would become about 2200 million dollars. 

The pipe-line system of the country is estimated by Ross to have a 
1920 replacement value of 400 million dollars, although representing 
an actual estimated investment of 300 million dollars. The U. S. 
Bureau of Mines, however, has estimated the pipe-line investment 
on the basis of the actual cost of the property to be approximately 
500 million dollars. 

The refineries of the country, including wharves, railroad ter- 
minals, cooperage plants, tin container plants, foundries, machine 
shops, etc., are estimated by Ross to represent in 1920 a total invest- 
ment of 1795 million dollars. On the basis of reports from 138 petro- 
leum-refining companies in 1919 running 84 per cent of the total 
refinery consumption of the country, whose investment was given by 
the Federal Trade Commission as 2088 million dollars, the total 
investment of the entire petroleum refining industry would amount 
to about 2480 million dollars. 

The investment represented by the American fleet of oil-tankers 
is placed by Ross at 250 million dollars for 1920. The original cost 
of the tankers completed by early 1921 will run higher than this 
total, since much of the tonnage was built at the height of cost. 

The inventories of crude petroleum and refined products, as given 
by Ross for April, 1920, are appraised by multiplying the quantities 
on hand at that time by the current market price. 

The investment of 660 million dollars represented by the marketing 
equipment, as shown in Table 2, is calculated on the basis of 4 dollars 
per barrel for the real estate and equipment engaged in retail mar- 
keting and 1 dollar a barrel for tanks and docks employed in fuel- 
oil sales. Included under this head are stations, warehouses, barges, 
tugs, trucks, tank-wagons, tank-cars, sidings, storage tanks, and so on. 

The total investment given by Ross is 7.4 billion dollars. This 
estimate may be modified to the extent of discriminating between 
the present worth of oil-lands and the actual investment made by the 



CAPITALIZATION OF THE INDUSTRY 7 

crude petroleum industry in them, and by eliminating from the count 
the value of inventories which is an asset but not strictly an invest- 
ment item. The total estimated investment would therefore become: 
production, 2 billion dollars; transportation, 0.75 billion; refining, 
2 billion; and marketing 0.75 billion; making a total of 5.5 billion 
dollars. Adding the additional investment represented by foreign 
holdings, the total investment in the American petroleum industry 
runs somewhere in the neighborhood of 6 billion dollars. 

The assets of the petroleum industry, in 1921, as compiled by 
the National Petroleum News, 1 from annual reports of the com- 
panies, was 6 million dollars, exclusive of companies having assets 
under one million dollars. A classification of assets by sizes of com- 
panies is given in Table 3. 



Table 3. 



-Assets of the American Petroleum Industry in 1921, 
Compiled from Annual Reports 



Rank 


Number of 
Companies 


Assets 


Above $100,000,000 

$50,000,000-1100,000,000 

10,000,000- 50,000,000 

1,000,000- 10,000,000 


12 
16 
36 

28 


$3,772,873,637 

1,147,417,412 

944,689,248 

164,717,016 


Total 


92 


$6,029,497,313 



Capitalization of the Industry. — The capitalized value of the 
petroleum industry is impossible to appraise closely because of the 
large number of unsubstantial concerns that appear on the record. 
An attempt has been made to segregate capitalization into the portion 
pertaining to 250 representative companies, for which the statistical 
record is practically complete, and the part relating to a much larger 
number of companies organized during the past few years whose 
ratio of cash investment to capitalization is not known. 2 The first 
group of companies represents the conservative and substantial 
element of the industry, while the second group embraces the new- 
comers, some legitimate, others merely stock-promoting schemes. 

A comparative view of the annual increments to the capitaliza- 
tion of the two groups of companies is shown in Table 4. 

1 May 18, 1921, p. 41. 

2 The analysis in this section makes use of the figures presented by H. L. 
Doherty in an address, "The Future of the Oil Business," published by the 
American Petroleum Institute, Dec. 10, 1920. 



8 



ORGANIZATION OF THE PETROLEUM INDUSTRY 



Table 4. — Comparison of the Annual Increase in Stock of 250 Estab- 
lished Oil Companies and Reported Annual Capitalization of New 
Oil Companies, 1913-1920 * 

(In millions of dollars) 



Year 


250 Established 


New 


Oil Companies 


Oil Companies 


1913 


121 


No data 


1914 


115 


No data 


1915 


67 


81 


1916 


272 


419 


1917 


333 


840 


1918 


132 


439 


1919 


707 


3786 


1920 


672 f 


2787 



* Data largely from H. L. Doherty. 

t New listings on the New York Stock Exchange in 1920. 



The same range of data, but on a cumulative basis, that is, 
showing the capitalization outstanding at the end of each year from 
1913-1920, is presented in Table 5. The capitalization given under 
the heading of " new oil companies " is, of course, far greater than 
the paid-in capital. 



Table 5.— The Growth in Capital Stock of 250 Representative Oil 
Companies Compared with New Oil Companies, 1913-1920 * 



Year 


Capital Stock 250 Established Companies 


Capital Stock New 
Oil Companies 


Millions of Dollars 


Per Cent of 1913 
Capitalization 


Millions of Dollars 


1913 
1914 
1915 
1916 

1917 

1918 
1919 
1920 


885 
1000 
1057 
1330 

1662 
1794 
2502 
3174f 


100 
113 
119 
150 

188 
203 
283 
358 


No data 
No data 
81 
500 

1340 
1779 
5565 

8352 

i 



* Data in part from H. L. Doherty. 
t Estimated, see Table 4. 



UNIQUE CHARACTER OF OIL 9 

It is apparent from Tables 4 and 5 that there has been a large 
flow of capital into the petroleum industry during the eight-year 
period under review. The quantity of capital thus engaged is 
greater than that listed under the 250 representative companies, but 
less than the sum of the " 250 established companies " and the 
" new oil companies," since the latter is in part real capital and in 
part mere paper. If 885 million dollars is accepted as a fair measure 
of the actual investment in the oil industry in 1913, and the growth in 
the value of the crude petroleum produced each subsequent year to 
1920 is a reasonable indication of the increasing capital requirements 
of the industry, the actual paid-in capital engaged at the end of 
1920 may be calculated to be approximately 5 billion, or 2 billion 
dollars more than the combined capitalization of the " 250 estab- 
lished companies." On the basis of the tangible investment as 
estimated in the preceding section the actual capital engaged in 
the petroleum industry is around 6 billion dollars. Thus it would 
appear that of the 1 1 billions of capital (actual and paper) that have 
been involved in oil, 5 to 6 billion represents a tangible quantity, 
while 5 to 6 billion indicates the magnitude of the oil boom. 

In other words, during the period 1913-1920, the actual capital 
absorbed into the oil industry to support its expansion was something 
like 4 to 5 billion dollars. During the same period, the money flowing 
out of the oil industry in the form of dividends was around 1 billion 
dollars, leaving a difference of 3 to 4 billion dollars as a rough approx- 
imation of the net amount absorbed. 

Until a few years ago, the oil industry to a large degree financed 
its expansion out of earnings. Of late, as indicated by the calcula- 
tions given above, the industry has sought outside capital to help 
sustain its growth. The ability to finance out of earnings was, of 
course, curtailed by the heavy taxation and inflated money values 
growing out of the war period, but with due qualifications for these 
factors, the recent expansion of the industry is to be credited in sub- 
stantial degree to the inflow of outside capital. This matter is well 
known in oil circles: " Up to date each inch of profit has called for a 
mile of investment to insure there being an inch of profit next year." 
Unique Character of Oil. — The estimates given above, as imperfect 
as they admittedly are, indicate some interesting economic tendencies, 
which should be studied in relation to certain characteristics 
peculiar to the development of petroleum. The oil industry has 
to deal with three characteristics lacking or at least not so highly 
developed in other industrial enterprises. These are : A rapid deple- 
tion of a given source of crude-oil supply, calling for careful account- 
ing if a net profit is to be shown after final liquidation of the 



10 



ORGANIZATION OF THE PETROLEUM INDUSTRY 



investment; a shifting base of supply, leading to a rapid obsoles- 
cence of transportation and refinery installations; and a rapidly 
changing demand, likewise contributing to a speedy obsolescence of 
material developments. It is questionable whether these factors 
have been given due allowance in oil accounting. 

Profits of the Petroleum Industry. — The substantial portion of the 
petroleum industry has proved to be a very profitable activity. The 
dividends paid annually by 250 representative companies from 1912 
to 1919 are given in Table 6. 



Table 6.- 



-Dividends Paid by 250 Representative Oil Companies by Years, 
1912-1919 * 





Dividends, 


Rate on Capital Stock, 




Millions of Dollars 


Per Cent 


1912 


64 


8.43 


1913 


93 


10.52 


1914 


75 


7.49 


1915 


78 


7.41 


1916 


121 


9.06 


1917 


150 


9.01 


1918 


159 


8.88 


1919 


166 


6.62 



* Data from H. L. Doherty, The Future of the Oil Business, Amer. Petr. Inst., Bull. 132, 
Dec., 1920. 

Figures compiled by the Federal Trade Commission 1 for 1919 
show higher earnings than those given in Table 6. For example, 
82 producing companies, turning out about 16 per cent of the coun- 
try's total output of crude petroleum and representing an investment 
of 366 million dollars, showed earnings at the rate of 17.7 per cent 
upon this investment. Fourteen of these companies, comprising 
2.6 per cent of the total production of the group, showed a loss of 
2.8 per cent upon their invested capital; while 14 other companies, 
representing an output of 37.3 per cent of the total for the group, 
enjoyed profits of over 30 per cent. Thus the tendency for earnings 
to run higher in the case of larger companies is displayed. 

Figures published by the Federal Trade Commission in 1919 
covering 138 petroleum refining companies, representing an invest- 
ment of 2088 million dollars and a refinery consumption of 84 per 
cent of the country's total, show an average profit of 16.8 per cent. 
Of this group 28 small companies representing 1.9 per cent of the 

1 Summary of report on the Pacific Coast Petroleum Industry, April 7, 1921. 



CONCLUSION 11 

total investment of the group and 3 per cent of the total refinery 
consumption of the group, showed a loss of 8.5 per cent; while 28 
large companies representing 22.2 per cent of the total investment 
and 22.5 per cent of the total refinery consumption, enjoyed earnings 
of 34 per cent. Five companies of the group with an investment of 
over 100 million dollars each showed an average rate of earning of 
24.6 per cent. 

Conclusion. — Under the impetus of the profitable nature of the 
oil business, the industry has expanded with notable rapidity, at 
first supporting its growth from the wealth created by its own efforts, 
later calling upon outside capital to lend assistance. Such a course 
is economically sound during a period of youthful development, 
if ultimately terminated by a period of productivity in which the 
flow of capital is reversed. Otherwise the activity will become per- 
manently dependent upon outside agencies of production, an eco- 
nomic anomaly impossible of attainment. 

In absorbing of recent years more capital than it has concur- 
rently produced, the oil industry as a whole has considerably over- 
expanded in respect to the quantity of raw material apparently 
available for maintaining future operations. If this interpretation 
is correct, it means either an ultimate financial loss on the part of all 
activities not soundly developed in respect to raw material, or else 
such an elevation in price level as will carry for a time much of the 
unsound development at a reduced capacity. The outcome will 
probably represent a compromise between the two, with a period 
of price inflation preceding an era of liquidation, with the possibility 
of complications resulting in a revision in the economic structure of 
the entire industry. 



CHAPTER II 
THE RESOURCE SITUATION l 

Character of Petroleum. — Crude petroleum is a mineral readily 
separable into liquid fuels, viscous compounds useful for lubrication, 
and other products entering into the arts in a number of forms. 
Chemically, it is dominantly composed of carbon and hydrogen, 
with a small percentage of nitrogen, sulphur, and oxygen which rank 
as impurities. The carbon and hydrogen are combined in an almost 
infinite variety of ways, forming endless numbers of hydrocarbon 
compounds that challenge the analytical skill of the chemist. 

According to Mabery, 2 petroleum is composed of varying mix- 
tures of five major series of hydrocarbons, each with a distinctive 
relationship between the nu'mber of carbon and hydrogen atoms 
present. These are (1) the paraffin series, C w H2n+2, comprising 
the main portions of the gasoline, kerosene, and wax of commerce; 
(2) the naphthene series, C„H2«, a closed-chain, or cyclic, type of 
hydrocarbon, especially characteristic of petroleums yielding asphaltic 
residues upon distillation; (3) a series of the formula C n H2«-2, 
represented particularly in the lighter petroleums, having some 
viscosity and forming lubricating distillates of light to medium body; 
(4) a series of the formula CnR2n-4, typical of the asphaltic petro- 
leums and forming the " constituents of the best lubricants it is 
possible to prepare from petroleum"; and (5) the aromatic series, 
C w H2rc-6, cyclic in character like the naphthenes and regarded as a 
detriment to be removed in refining. 

In practice, the various types of petroleum are regarded as falling 
into three classes : the paraffin-base petroleums, especially rich in the 
hydrocarbons of the CnH-2n+2 and C,Jl2n-2 series; the asphalt-base, 
or more properly the naphthene-base, petroleums, consisting mainly 
of the hydrocarbons of the CnR2n, C n H2 W -4, and to some degree of 
the CJHfen-e series; and intermediate types. The paraffin-base 

1 For a general analysis of the petroleum resource, see Gilbert and Pogue, 
Petroleum: A Resource Interpretation, Bull. 102, Pt. 6, U. S. National Museum, 
1918. 

2 Composition of Petroleum and its Relation to Industrial Use, American 
Institute of Mining and Metallurgical Engineers, Publ. No. 158, February, 1920. 

12 




FIG. 3 DISTRIBUTION OF THE IMPORTANT OIL-POOLS OF THE UNITED STATES 
Adapted from a map published by Arthur D. 




Ada 44 Okla. 

Adair 27 Okla. 

Allen 43 Okla. 

AHeDdale 3 111. 

AUuwe 27 Okla. 

AltaviBta 80 Tex. 

Anee I.aButte 117 La. 

Augusta 17 Kan. 

Avant-Ramona 26a Okla. 

Avis 55 Tex. 

Badger Baein 1 Wyo. 

Bald Hill 36 Okla. 

Bangs 70 Tex. 

Barbtrs Hill 98 Tex. 

Bartlesvilic 26 Okla. 

Bartlctt 38 Okla. 

Batson 100 Tex. 

Baxter 27 Wyo. 

Beaumont 18 Kan. 

Belridge 3 Cal. 

Big Hill 87 Tex. 

Big Hill 101 Tex. 

Big Muddy 21 Wyo. 

Big Piney 28 Wyo. 

Big Sand Draw 18 Wyo. 

Billings 23 Okla. 

Bird Creek 32 Okla. 

Birds- Flat Rock 7 III. 

Black 61 Tex. 

Blackwell 20 Okla. 

Blue Ridge 93 Tex. 

Bonanza 8 Wyo. 

Boulder 35 Colo. 

Breckenridgc 61 Tex. 

Brenning 22 Wyo. 

Broken Arrow 33 Okla. 

Brown 81 Tex. 

Brownwood 68 Tex. 

Bryan 88 Tex. 

Buck Creek 19 Wyo. 

Bud Kimball 9 Wyo. 

Bull Bayou 107 La. 

Burbank 26b Okla, 

Burkburnett 48 Tex. 

Byrd's 69 Tex. 

Byron 3 Wyo, 

Caddo 103 La. 

Caddo 62 Tex. 

Canary 26 Okla, 

Carlyle 2 111. 

Caamalia 7 Cal. 

Cat Canyon 7 Cal. 

Cat Creek 1 Moni 







Okla. 

Okla. 

Okla. 

Okla. 

Okla. 

Kan. 

Tex. 

Okla. 

Cal. 

IU. 

Wyo. 

Okla. 

Okla. 

Tex. 

La. 

Okla. 

Tex. 

Okla. 

Kan. 

Tex. 

Tex. 

Okla. 

111. 

Tex. 

La. 

Tex. 

Wyo. 

Wyo. 
La. 
Kan. 
Kan. 

Tex. 
Tex. 
Wyo. 
Kan. 
La. 

Wyo. 
Okla. 
Colo. 
Kan. 
Okla. 

Mont. 

Okla. 
Okla. 
Wyo. 
Tex. 
Wyp. 

Wyo. 


GrBy 

Grayford 


... 70 
... 60 


Tex. 
Tex. 
Kan. 
Wyo. 

Wyo. 

Okla. 

La. 

Okla. 

Kan. 

Wyo. 

Tex. 

Okla. 

Tex. 

Okla. 

Tex. 

La. 

Tex. 

Wyo. 

Tex. 

Tex. 

Kan. 
Okla. 
Kan. 
Tex. 
Ky. 

Tex. 
Ohio 
La. 
111. 

Cal. 
111. 

Okla. 
Okla. 
Kan. 

Tex. 
Okla. 
Cal. 

Wyo. 
Wyo. 
Wyo. 

Pa. 

Cal. 

Okla. 

Tex. 

Tex. 

Cal. 

Tex. 

Tex. 












Moorecroft 

Mooringaport .... 


... 103 


Wyo. 








. . . . 28 








1- 






















Hayncsville 


::: X 


Muskogee 


... 37 




Coalinga 

Coltnar 

Coodys Bluff 


42 

18 

27 




Bcplcr 

Hidden 

High Island 

Hobart 

Hockley 

Hogshootcr 

HoUiday 

Hudson 

Hull 

Humble 

Humboldt 

Independence .... 


7a 
9 
. . . 101 
.. . 45 
... 95 
.. . 26 
... 52 

... 90 
... 15 
... 99 
... 96 
... 8 

... 11 


New Iberia 


... 116 


La. 














Oil City 


50 






.... 107a 
35 












Crowson 


Olinda 

Olncy 

Osage 

Ouachita 

Panther 

Paola 

Peabody 

Pickering 

Piedrus Pintas.... 
Pierce Junction.. . 


... 28 
... 31 
... 110 

... 53 
3 

... 19 
... 105 
... 84 


Cal. 








Dallas 




La. 


Damon Mound. . 


92 

99 


Tex. 
Kan. 














DcSoto-Hed Rive 


.... 106 


lola 


» 


Tex. 


Douglas 


47 


Jack Co 

Jackson Ridge 


6 

... 55 
5 


Wyo. 
La. 
Wyo. 
Kan. 


Duke-Knowles . . 
Duncan-Walter.. 


Pine Island 


... 103 


Button 


Pleasanton 


... 22 




Johnson 


... 5 


Okla. 






Okla. 






Putnam 

Pyramid Fossil .... 

Ragland 

Ralston 

Rawhide 


... 19 
... 66 
... 29 

.. 24 

.. 10 


Wyo. 


Eldorado 

El Dorado 


14 

1 


Kirk wood 


8 


Tex. 




Lark 

Linwood 

Lockhart 

Lompoc 


... 57 

6 

... 79 

... 50 

7 






















Evaogelinc 


.... 115 


















Rock Springs 

Rocky Ford 

Sage Creek 

Sallyards 

Salt Creek 


. . 27 

.. 14 
.. 16 
.. 20 


Wyo. 










Wyo. 






Lowell 

Lucerne 

McDonald 

McKittrick 


S 








Wyo. 






Kan. 






Wyo. 
















Markham 


" 






















Midway-Sunset. . . 

Milsap 

MiBBion 


1 
... 81 


Sapulpa 


100 










Grass Creek 




Sequoyah 


.. 34 


Okla. 



Sheep Mountain 16 Wyo. 

Shinnston 1 Pa. 

Siggins 6 III. 

Sipo Springs 65 Tex. 

Skiatook 32 Okla. 

Somerset 82 Tex. 

Sour Lake 100 Tex. 

South Bend 62 Tex. 

South Bosque 75 Tex. 

South Grosbcck 74 Tex. 

Speechly 7 Pa. 

Sperry 32 Okla. 

Spindle Top 102 Tex. 

Spring Valley 30 Wyo. 

St. Marys 2 Okla. 

Stephens Co 61 Tex. 

Stratton Ridge 89 Tex. 

Strawn 63 Tex. 

Sweetwater 17 Wyo. 

Tabor 35 Okla. 

Taneha 30 Okla. 

Tarall 77 Tex. 

Ten Sheep 9 Wyo. 

ThiTinopiilia 12 Wyo. 

Thorndalc 76 Tex. , 

Thornton 33 Wyo. 

Thrall 76 Tex. 

Torchlight 7 Wyo. 

Trickham 71 Tex. 

Tulsa 32 Okla. 

Turley 32 Okla. 

Upton Thornton 33 Wyo. 

Upper Lawrence Co. .. 8 III. 

Ventura 8 Cal. 

Vernon 58 Tex. 

Vinton 113 La. 

Virgil 15 Kan. 

Vivian 103 La. 

Wagon Hound 11 Wyo. 

Waggoner 48 Tex. 

Waggoner 33 Okla. 

Warm Springs 12 Wyo. 

Wellsville '2 Kan. 

Welsh 114 La. 

West Columbia 91 Tex. 

West Coyote 9 Cal. 

West Fork 54 Tex. 

West6eld 5 111. 

White Point 85 Tex. 

Whittier 9 Cal. 

Yale 29a Okla. 

Youngetowu 39 Okla. 

[To facz page IS] 



OCCURRENCE OF PETROLEUM 13 

crudes are rich in gasoline and wax, and yield the bulk of the 
lubricants produced; the asphalt-base crudes are low in gasoline, 
yield for the most part notable percentages of asphalt, and although 
rich in viscous hydrocarbons are not so extensively employed in 
the manufacture of lubricants; the intermediate, or mixed-base, 
petroleums share the characteristics of the other two. As may 
be readily inferred from the carbon-hydrogen ratio, the paraffin 
petroleums are lighter in weight and more fluid than the asphaltic 
petroleums. 

Occurrence of Petroleum. — Petroleum occurs in the crust of the 
earth, filling the interstices and crevices in certain types of stratified 
rocks, particularly sandstones and limestones. It usually holds in 
solution notable quantities of natural gas under pressure, which adds 
to the mobility of the oil. Salt water is customarily in close asso- 
ciation with the oil, contributing materially to the difficulties of 
exploitation. 

Petroleum is in all probability the natural product of animal and 
vegetable matter buried in sedimentary formations of the geologic 
past. The various theories accounting for its origin are notable 
for agreeing that the oil has migrated from its parent abode to its 
present points of occurrence. Lighter than water with which the 
rock formations are usually saturated, the oil and gas tend to migrate 
upward, working their way to porous beds and following freely 
their course until arrested by a downward curvature or impervious 
capping. Thus an oil pool is usually a body of convex shape like an 
inverted basin, lying under the crest or dome of an impervious layer 
of rock. Normally the order of occurrence is gas just below the 
crest, then oil, and finally water buoying up the oil with its support 
from below. Where water is lacking, as in portions of the Appa- 
lachians, the oil tends to accumulate in the structural synclines 
rather than under the domes or anticlines. 

The conditions under which petroleum occurs in the United States 
have been so extensively studied by methods of geological engineering 
that the areas of the producing and prospective fields, the number, 
depth, and thickness of the oil-bearing formations, and the physical 
characteristics of the productive territory are already known in con- 
siderable detail. 

Distribution of Petroleum. 1 — The extent of the known oil-pro- 
ducing territory of the United States is given in Fig. 2, while in Fig. 3 
are shown the principal pools and producing centers. There are seen 

1 The description of American oil-fields presented in this section is taken 
with slight modification from a pamphlet entitled "The Outlook for Petro- 
leum," published by Arthur D. Little, Inc., in 1920. 



14 



THE RESOURCE SITUATION 




DISTRIBUTION OF PETROLEUM 15 

to be seven major fields: The Appalachian, Lima-Indiana, Illinois, 
Mid-Continent, Gulf, Rocky Mountain, and California. The 
Texas and Louisiana districts, other than those occurring along the 
coast which constitute a type to themselves, belong with the Kansas- 
Oklahoma area as extensions of the great Mid-Continent field. The 
recent prominence of the Texas-Louisiana group, however, suggests 
separate consideration. 

The Appalachian field is the country's oldest and most consistent 
producing source. Its history dates back to the discovery well in 
1859 on the Drake farm at Titusville, Pennsylvania, which marked 
the beginning of the American petroleum industry. Little or nothing 
was known of oil geology at the time and the complexities of the 
Appalachian structure were alow in being worked out. In conse- 
quence its numerous pools were located at scattered intervals of time 
and for forty years new production continued to more than offset 
the waning output of the older districts. Since 1900, however, the 
net tendency has been reversed. Production in this field has been 
on the down grade and its output to-day is little more than half the 
figure that characterized the field at its prime. 

The Appalachian field comprises a great spoon-shaped structural 
basin with limits established without possibility of important exten- 
sions. Within this basin the oil and gas, where accompanied by 
water, accumulated beneath the' crests of secondary folds; but 
where water was absent the two parted company, the gas rising 
to the crests and the oil sinking to the depressions. The bottom of the 
basin represents the most productive area and underlies the West 
Virginia Panhandle, where the basin has a width of about 150 miles. 
To the northeast and the southwest it not only narrows but becomes 
less productive until it terminates in southwestern New York and 
in a scattering of outliers in Kentucky and northern Tennessee. 

New pools in the Appalachian basin continue to be located from 
time to time, particularly in Kentucky, but the structure has been 
determined and tested to such a degree that considerable extensions 
are extremely improbable. The chief factor responsible for the sus- 
tained output is that pumping may be profitably conducted to the 
very last of the oil underground. Thus the larger share of the field's 
output is drawn from a multitude of small wells intermittently 
pumped from sump accumulations. 

The Lima-Indiana field, the second oldest source of American 
petroleum, affords an interesting variant from the usual occurrence 
in which the oil is found in porous sandstones or " sands." There 
the oil occurs in limestone. In a regional sense, this field holds a 
structural relationship to its neighbor to the east. The Appalachian 



16 THE RESOURCE SITUATION 

field occupies a geosyncline, or great structural basin, between the 
mountainous Appalachian uplift on the east and the gentle Cincin- 
nati uplift on the west. The Lima-Indiana accumulation of oil was 
found toward the crest of the Cincinnati uplift underlying subordinate 
domes where the limestone had suffered alteration to a porous mag- 
nesian variety. The field was discovered in 1886, reached its crest 
of production two decades later, and has been on the decline ever 
since. The structure has been worked out and the possibilities 
explored to such a degree that nothing other than a continued decline 
to extinction may be expected. 

The Illinois field includes the great structural arches next to the 
west and the pools underlie the secondary convexities in the major 
system. Drilling quickly took the measure of the field, once it was 
discovered in 1905, and brought it to its prime in five years. Since 
1910 it has been steadily declining and no revival is in prospect. 

The Gulf Coast field, discovered in 1900, reached its apparent 
prime only five years later and thereafter declined with minor fluc- 
tuations until the bringing in of new pools in 1913 renewed its vigor. 
In consequence its current rate of output is nearly three times that 
of its apparent declining years and nearly equal the peak of fifteen 
years ago. The pools are found beneath a peculiar type of local 
uplift, called domes, similar to those in which salt and sulphur 
occur in commercial quantities. These domes are not a definite 
part of any great structural system, but are of local development and 
usually give no surface indications of their presence. The discovery 
of new pools, accordingly, is largely contingent upon fortunate 
drilling. This is what brought about the rejuvenation of the field, 
and the history of the past few years may repeat itself. But the 
area on the whole is not extensive and, excepting the famous Spindle 
Top pool, the individual occurrences are not sensationally large; 
so it is quite improbable that the field will ever substantially enlarge 
upon its present output. 

Two small pools in Colorado discovered in 1876 first called atten- 
tion to the existence of a Rocky Mountain field. Their combined 
output, however, was insignificant until the discovery of the Salt 
Creek pool in Wyoming renewed interest in the field and led to 
a steadily increasing production which in 1920 approached the 20 
million barrel mark. The Rocky Mountain field is still undoubtedly 
in its youth and susceptible of extension. Considerable effort has 
been expended in determining possible oil structures not only in 
Wyoming, but in Montana, Utah, and New Mexico as well, where 
general geological conditions are favorable to the presence of oil. 
The mode of occurrence conforms to the structural anticlines that 



DISTRIBUTION OF PETROLEUM 17 

wall off the great structural basins, and the boldness of the exposures 
simplifies the work of interpreting the latent possibilities of the field. 
Without specifying the results in detail, they may be said to hold 
out hope of finding additional sources, but structures on the Appa- 
lachian and Mid-Continent scale of magnitude are lacking. From 
the surveys made it is possible to appraise the future of the field in a 
general way and to venture the prediction that the output can scarcely 
be expected to exceed 40 million barrels as an annual maximum. 

The California field was brought into action in 1898 and has been 
steadily increasing in importance ever since, with a temporary slump 
in 1915. The present annual production rate of approximately 100 
million barrels exceeds the combined output of the five fields thus far 
discussed, and represents nearly a quarter of the country's total. 
The areal extent of the fields is not in keeping with its producing 
importance, but the pools are characterized by a tremendous and 
sustained capacity. The limits of the field can scarcely be said to 
have been entirely determined, but the possibility of finding a suc- 
cessor to the Midway Sunset district is distinctly remote and more 
than passing significance is to be attached to the general flattening 
of the production curve since 1913. (See Fig. 21, p. 55.) On a 
larger scale, the field promises to reproduce the past history of the 
Lima-Indiana and Illinois fields from around 1902 and 1908 respect- 
ively, which is to say that the next three years will see the field set 
for a slow but sure decline. 

The Mid-Continent field is the latest and greatest of the country's 
producing sources to come into prominence. The principal product- 
ive area extends from Kansas City south across eastern Kansas and 
Oklahoma with extensions into northern and central Texas and north- 
western Louisiana, which are commonly treated separately in view 
of their recent prominence. After a sensational early development 
between 1903 and 1907, the field steadied down to a substantial 
growth during the next few years only to have a second sensational 
boom ushered in by the phenomenal Cushing district in 1914. 
Recently the center of attraction has shifted to the pools in Texas 
and Louisiana. 

The mode of occurrence is definitely related to the structure 
which, unlike that of the Gulf Coast area, is for the most part dis- 
cernible at the surface. It is generally conceded that such new pools 
as await discovery in Kansas and Oklahoma are in the nature of 
outliers. The Texas and Louisiana extensions unfortunately have 
shown themselves to be disappointingly short-lived with a disposition 
to go to water quickly. Unless there are unknown reserves of a dif- 
ferent order, a prospect out of keeping with what is already known of 



18 THE RESOURCE SITUATION 

the geologic structure, or unless important extensions can be quickly 
found to the northwest or the southwest, which seems unlikely on a 
large scale, the increment added from year to year by outliers cannot 
long continue to offset the waning output of the great pools toward 
the center of the field. What has been said of the great California 
field bids fair to hold even more assuredly of the still greater Mid- 
Continent source. Production here has been unduly forced by 
the oil-boom of 1919-20 and is misleading; but this cannot con- 
tinue, and the production curve is due shortly to round off and begin 
a long course downward like that of the fields to the east. 

From this brief review of the producing fields, it is seen that of 
the seven domestic sources three are in a state of hopeless decline; 
one is largely an unknown quantity; the two greatest are at their 
best; and just one, the Rocky Mountain field, is assuredly still in its 
youth. 

The Unmined Supply of Petroleum in the United States. 1 — 
The portion of the petroleum resource of greatest interest is that not 
yet used, for the unmined supply must support the future. With the 
growth of geological knowledge regarding the character and location 
of oil-bearing formations, attention was naturally attracted to esti- 
mates of the oil underground; and as early as 1908 Day, then in 
charge of the petroleum statistics in the U. S. Geological Survey, 
calculated the total quantity of oil originally available in the ground 
in the United States as ranging between a minimum of 10 billion 
barrels and a maximum of 24.5 billion barrels. (For purposes of 
comparison it should be recalled that our present annual require- 
ments are slightly above one-half billion barrels.) Day's estimate 
was based upon data accumulated by the Survey in the course of 
extensive field investigations, but at the time the drill had not 
penetrated some of the richest oil-pools in the country. 

Again, in 1915, Arnold revised the inventory made by Day, in 
the light of the additional engineering data and the advance in 
geological science that had developed in the meantime. And the 
period between 1908 and 1915, it should be noted, was marked by an 
intensive development in which new oil-producing territory was 
opened up and the older areas were more closely studied. Arnold 
placed the original supply at approximately 9.1 billion barrels, thus 
somewhat reducing Day's minimum. 

A third estimate was made by the geologists of the oil and gas 
section of the U. S. Geological Survey in 1916 in response to a Senate 
resolution, and this estimate placed the original supply at 11.2 billion 

1 A further discussion of this topic will be found in Gilbert and Pogue, 
America's Power Resources, New York, 1921, pp. 249-258. 



UNMINED SUPPLY OF PETROLEUM IN UNITED STATES 19 

barrels. In the spring of 1917 the matter was carefully reconsidered 
" with marked conservatism " by the same geologists, each studying 
the regions with which he had field acquaintance, with the result 
that the original supply was reduced to 10.1 billion barrels. 

Finally, in late 1918, the whole appraisal was recalculated by 
David White and his associates on the Geological Survey, in the light 
of still further information, and the conclusion was reached that the 
original supply of available oil in the ground was approximately 11.3 
billion barrels. 1 

These five estimates may be tabulated for comparison: 



Table 7. 



-Estimate of the Original Supply of Crude Petroleum 
in the United States 



Year 


Unmined Supply 
{In billions of barrels) 


1908 
1915 
1916 
1917 
1918 


10-20.4 

9.1 

11.2 

10.1 

11.3 



The striking feature of the comparison is that the development 
work of the ten-year period, which so markedly increased the pro- 
duction of crude petroleum, did not materially enlarge the apparent 
size of the resource. 

The dependability of such estimates has been widely questioned, 
and none would be readier than the sponsor geologists themselves to 
disclaim exactitude or finality for the figures. But the fact remains 
that successive estimates of the unmined supply, in spite of the 
enlarging acreage sounded by the drill, do not materially increase 
the total. And while the margin of error may be conceded to be as 
much as 50 per cent, or even 100 per cent to allow for contingencies, 
the important point is the smallness of the domestic resource upon 
which our petroleum requirements are dependent. 

Up to January 1, 1921, the United States has produced 5.4 billion 
barrels of petroleum. Subtracting this quantity from the original 
supply of 11.3 billions, we have left as a working reserve 5.9 billion 
barrels, with an annual consumption requirement running well above 
the half billion mark. The Chief Geologist of the U. S. Geological 
Survey in 1920 was quoted as believing it fair to consider 6.5 billion 

1 David White, The Unmined Supply of Petroleum in the United States, 
Society of Automotive Engineers, February, 1919. 



20 



THE RESOURCE SITUATION 



barrels as conservative and 8 billion as an improbable maximum. 1 
But double or even treble the size of the reserve, and the resource 
situation still remains serious, if not critical. Even repudiate 
entirely the geologist and all his works, and there still remain the 
production facts to reckon with, which tell us that the rate of extrac- 
tion must soon slow down, irrespective of the unmined supply. 

A decline curve for the country as a whole, picturing the resource 
depletion, is presented in Fig. 4. 



lO BILL 


.ION BARRELS 




























r.6 BILLION BARRELS' 




> 














o 










^\6.7 BILLION BARRELS 


















Z 
















111 
















> 

Z 








> 
DC 
O 




> 


5.9 BILLION BARRELS 




03 








H 




cc 


\ 




O 








Z 




o 


\ 




0) 








Ul 




f- 


s 




"™ 








> 




z 








>- 








z 




Id 

> 




N 
N 




0. 
0- 
3 
CO 

o 

Ul 








10 

5 

> 
_J 




z 

00 

2 


O 

CM 

2 

>- 


X 


\ 














>- 


_l 








I 








3 




_J 
a 


Q. 

a 






N. 


z 








CO 




a. 


3 






^«. 


3 








Q 
Ul 

z 
z 

3 




CO 

Q 
U 

z 

I 

z 

3 


CO 

Q 
Ul 

z 
I 

Z 
3 










U.S. 


PRODU 


DTION 










M 


MM 


MM 


mm. 


iim 


— T 


- f 


1 






■A., 



3.2 BILLION BARRELS 



ESTIMATED UNMINED 
SUPPLY- 1930 



1920 1922 1924 192e 1928 1930 



Fig. 4. — Estimated unmined supply of crude petroleum in the United States. 
After Pogue and Lubin, U. S. Fuel Administration; data for 1908-1920 
from U. S. Geological Survey; projection 1920-1930 from Bates and Lasky, 
Amer. Inst. Min. and Met. Eng. 



Distribution of Unmined Supply. — The original quantities of oil 
underground in the various producing fields, as well as the extent to 
which the different areas have been exploited, are dissimilar, and it 
is therefore of interest to review the distribution of the remaining 
supply. The resource situation by fields, on the basis of the esti- 

1 George Otis Smith, A Foreign Oil Supply for the United States, Publ. 
No. 157, American Institute of Mining and Metallurgical Engineers, January, 
1920. 



DISTRIBUTION OF UNMINED SUPPLY 



21 



mates of the U. S. Geological Survey, is accordingly presented in 
Table 8 and interpreted graphically in Fig. 5. 



Table 8. — The Quantity of Petroleum Extracted and Still Available in 
the Oil-fields of the United States 
(Data from the U. S. Geological Survey) 



Fields 


Original 

Supply 

(Millions 

of Ban els) 


Extracted to 

Jan. 1, 1921 

(Millions 

of Barrels) 


Per Cent 
Exhausted 


Available 
Jan. 1, 1921 

(Millions 
of Barrels) 


1920 

Production 

(Millions 

of Barrels) 


Appalachian 

Lima-Indiana .... 

Illinois 

Kans.-Okla 

N. Texas 

N. Louisiana 

Gulf 

Wyoming 

California 

Others 

Total 


1,772 
488 
473 

2,716 
479 

191 
1,054 

440 
3,364 

361 


1281 
455 
321 

1251 
217 

138 
351 

70 
1321 

11 


72 
93 
68 
46 
45 

72 
33 
16 
39 
3 


491 

33 

152 

1465 

262 

53 

703 

370 

2043 

350 


30.5 
3.1 

10.8 

144.2 

71.0 

33.9 

26.8 

17.2 

105.7 

0.2 


11,338 


5416 


48 


5922 


443.4 



Interpretation of Supply. — It must not be supposed that the un- 
mined supply can be divided by the current production and a figure 
obtained that will even approximate the life of the resource. The 
estimates were originally drawn on the basis of the present factor of 
recovery, which, as will appear in Chapter 28, is unduly low, and upon 
the present price level, which has not stimulated the utmost extrac- 
tion of the oil. With increasing dearth and rising prices, oil not now 
economically recoverable will be brought to the surface, the supply 
of oil will be enlarged by more efficient methods of mining, and a 
relatively smaller volume of oil will be made to perform a given 
service through more effective refining and application. The supply, 
therefore, may be expected to spread over a greater period of time 
and a wider range of essential service than would appear from an 
unqualified consideration of the figures alone. 

What the estimates of the unmined supply do show, therefore, 
is not impending exhaustion, but the imminence of a period of 
economic and technical proficiency in bringing the remaining supply 
of our crude petroleum into effective service. The arrival of this 
period may be expected to usher in changes of far-reaching signifi- 
cance in the structure and functioning of the petroleum industry. 



22 



THE RESOURCE SITUATION 



APPALACHIAN 



LIMA -INDIANA 



KANSAS- OKLAHOMA, 



N. TEXAS 

N. LOUISIANA 



Oil in Foreign Countries. — The limited size of the oil reserve of 
the United States, and the degree to which it is already depleted, 
naturally direct attention to foreign oil-fields. The petroleum 
resources of most of the rest of the world are far less thoroughly 
measured than those of this country; although sufficient is known 
„ perhaps, to lead to an 

approximation of the 
world's reserve, if lee- 
way be allowed as a 
margin of error. 

There is little, if 
any, doubt but that 
the dominant portion 
of the oil in the crust 
of the earth underlies 
three broad areas : the 
United States; the 
Caribbean basin, in- 
cluding Mexico, Cen- 
tral America, Colom- 
bia, and Venezuela; 
and the Caspian- 
Black - Sea - Eastern 
Mediterranean region, 
including southern 
Russia, south-western 
Siberia, Mesopotamia, 
Persia, and Palestine. 
These three major oil 
areas have an original 
oil content that for 
purposes of compari- 

FiG. 5.— The petroleum reserve of the United States son ma Y be regarded 
by fields, showing the portion used to Jan. 1, 1921; as of the same order 
data from U.S. Geological Survey. of magnitude, or 

roughly 10 billion bar- 
rels each. While such figures are doubtless highly speculative, 
they are better than purely qualitative terms and are reasonably 
satisfactory as a basis of discussion. Elsewhere in the world 
there may be an additional 10 billion barrels, thus raising the 
world resource to the neighborhood of 40 billion barrels or so, 
of which the United States has used up approximately half of the 
10 billion barrels falling immediately to her share. 




CALIFORNIA 



OTHERS 



r—T 



I , 1 I 



O 10 20 30 40 50 60 70 80 90 100$ 
FIGURES REPRESENT MILLIONS OF BARRELS 



OIL IN FOREIGN COUNTRIES 



23 



The general distribution and magnitude of the principal petroleum 
reserves of the world have been estimated by Eugene Stebinger, 
of the Foreign Mineral Section of the U. S. Geological Survey, and 
the results of these estimates have been published and discussed 
by David White. 1 A map compiled by the Survey showing these 
estimates in diagrammatic form is presented in Fig. 6, on which the 
estimated reserves are shown by circles proportional to the quan- 
titative importance of the various regions. The data upon which 
this map is based are shown in Table 9. 

Table 9. — Preliminary Estimate of the Petroleum Resources of the 
World, after Stebinger of the U. S. Geological Survey 



Regions 



Relative 
Magnitude 



Approximate 
Quantity in 
Millions of 
Barrels 



United States and Alaska 

Canada 

Mexico 

Northern South America including Peru 

Southern South America including Bolivia 

Algeria and Egypt 

Persia and Mesopotamia 

S. E. Russia, S. W. Siberia and the region of the 

Caucasus 

Rumania, Galicia and Western Europe 

Northern Russia and Saghalien 

Japan and Formosa 

China 

India 

East Indies 

Total 

Total eastern hemisphere 

Total western hemisphere 

Total north of the equator 

Total south of the equator 



100 
14 
65 
82 
51 
13 
83 



83 
16 
13 
18 
20 
14 
43 



7,000' 
995 
4,525 
5,730 
3,550 
925 
5,820 



5,830 
1,135 

925 
1,235 
1,375 

995 
3,015 



615 

303 

312 

520 

95 



43,055 

21,255 

21,800 

36,400 

6,655 



* Since this table was completed the reserve in the United States has been drawn upon 
to the extent of over 800 million barrels, thus being reduced to about 6000 million barrels 
as of Jan. 1, 1921. 

It should be noted that the totals given in the table " suggest a 
surprisingly even balanced distribution of oil between the eastern 

1 The Petroleum Resources of the World, Annals of the American Academy, 
May, 1920. 



24 



THE RESOURCE SITUATION 




OIL IN FOREIGN COUNTRIES 



25 





oooeooooooo 



".•.'•.'mexjcq':.'. 



'";'"s'.^^.TH 'f, 

\ AME-RICA/l: 
tlncCB.OLIvlAV 



lYVVVVYVYVV 

•ALGERIA & EGYPT 

AWWWWY 



■ • • • 

j?e.rsia.:& v 

lyiesopoTA^iA 









\\W v E n SJ,ERNsO 
WbMI5 n P&BR£ 



Fig. 7. — Relative petroleum resources of the world, after data compiled by 
Stebinger, U. S. Geological Survey. 



26 THE RESOURCE SITUATION 

and western hemispheres, and, as with the distribution of the world's 
coal reserve, a great preponderance of tonnage north of the equator.' ' 
In discussing these estimates, White calls them conservative not 
only because they represent "the cautious judgment of a well-trained 
and experienced oil and gas geologist based on the best informa- 
tion available at the present time, but also for the reason that the 
value assigned to the oil-fields of the United States is conservative." 
White goes on to say that " these forecasts, or geological guesses, 
formulated conservatively with the probability that deficiencies will 
be very much more than compensated by excesses, lead one to con- 
clude that there are probably 20 billion barrels of oil available in the 
world in addition to the 43 billion barrels contained in the regions 
covered by Mr. Stebinger's estimates quoted above, or as much in 
round numbers, as 60 billions of barrels in all." 

The figures shown in Table 9 are graphically expressed in Fig. 7, 
which throws the estimates into perspective. 

Undoubtedly the estimates of the world's reserve as here given 
are the most general approximations merely, but at the least they 
have sufficient substance to show where the leading centers of oil 
production are likely to be in the future ; and they serve to emphasize 
the important draft already made upon the portion underlying the 
United States. With due qualification they must be given consider- 
ation in matters involving the industrial and international policy of 
this country. 



CHAPTER III 
THE TREND OF OIL-FIELD DEVELOPMENT 

The exploitation of petroleum involves three successive stages: 
exploration, to locate oil-bearing territory; development, to bring 
the oil into production; and production, to reduce the oil to pos- 
session. A sustained output of petroleum necessitates vigorous 
extension of productive territory, consistent drilling of the area so 
proven, and steady withdrawal of the oil brought into production. 
The first two factors are progressive, while the third is cumulative. 
At any given moment, the country's output of crude petroleum is a 
function of the number of producing wells and their average flow; 
but the course of production is dependent in addition upon the rate 
of drilling and the extension of territory suitable for drilling, since 
the average flow of old wells is a decreasing function. 

Exploration, or the extension of oil-bearing territory, is highly 
individualistic and is prosecuted mainly by an activity picturesquely 
termed "wildcatting," whereby wells are drilled in regions of promise 
by individuals, corresponding somewhat to the prospectors in metal- 
mining, who are spurred on by the notable gain attaching to lucky 
strikes. To a large degree, therefore, the pioneer work of exploration 
falls to the lot of individual initiative and enterprise, the organized 
agencies of production tending to center their attention upon the 
acquisition and drilling of land in proven territory. The cost of 
exploration, especially that of negative exploration, does not fall 
heavily upon the books of the industry proper, being carried chiefly 
at the expense of the speculative fringe of operators playing a hazard- 
ous game of chance. There is no basis for estimating the cost of 
exploration in the aggregate, as it does not enter completely as a 
tangible factor into the cost sheets of productive wells . 

Development, or the drilling of proven territoiy, is the factor of 
prime importance in compensating for the normal declining tendency 
of producing wells. The degree to which the country's production 
of crude petroleum is dependent upon the new wells drilled is indicated 
by figures compiled by the American Petroleum Institute which 
show that the output of twenty large producing companies in 1919 
was 172 million barrels, of which 45 million, or 2G per cent, came from 

27 



28 



THE TREND OF OIL-FIELD DEVELOPMENT 



wells completed in that year. It would appear from these figures 
that roughly three-quarters of our annual production of oil is now com- 
ing from old wells, and one-quarter from new wells. 

Technology of Oil-field Development. — The technical features 
of drilling and production are complex and need be touched on 
here only in so far as they bear upon the economic problems. Oil, 
of course, is won from wells drilled vertically into the crust of the 
earth to a depth of usually from one thousand to several thousand 
feet until the productive stratum is tapped. Two methods of drilling 
are in vogue: the older, and more widely employed, is the standard 
method, which utilizes a churn drill that pounds its way downward; 
the newer and more efficient in formations that are not too resistant 
is the rotary method, employing a drill that bores its way downward. 
The drill hole must usually be protected, either in whole or in part, 
by the insertion of iron piping called casing, which prevents the inflow 
of water or the improper escape of the oil and associated gas. 

The completion of an oil well is a costly process running usually 
into tens of thousands of dollars, as it involves a large expenditure of 
labor, power, steel, and time as well as a considerable outlay of capital. 
In 1913 the average 2500-foot well in Oklahoma or Kansas could be 
drilled and equipped for $12,000; in 1920 a similar well cost $32,000. 
In Table 10 is shown an analysis of the items of cost entering into the 
drilling of a typical oil well 2500 feet in depth under average condi- 
tions with cable tools in the Mid-Continent field. 



Table 10. — Cost of Drilling and Equipping a Typical 2500-foot Well in 
the Mid-Continent Field, 1913-1920 

(Data from Bates and Lasky, compiled by F. W. Swift) 

{In thousand* of dollars) 



Items 


1913 


1914 


1915 


1916 


1917 


1918 


1919 


1920* 


Casing 


5.03 
2.03 
1.22 
3.52 


4.87 
3.38 
1.32 
3.74 


4.82 
3.65 
1.35 
3.74 


6.55 
4.38 
1.45 
4.27 


9.26 
5.00 
1.77 
5.42 


10.3 
5.63 
2.10 
6.53 


13.0 

7.75 
2.83 
7.92 


13.0 
7.75 
3.40 

7.85 


Contract drilling . . 
Labor 


Other 


Total 


11.8 t 


13.3 


13.6 


16.6 


21.4 


24.6 


31.5 


32.0 












*Est 


imatcd. 


t 


Uorrecte 


i total. 









The cost of drilling, also, increases rapidly with depth; roughly 
speaking each thousand feet below a depth of three thousand doubling 
the cost of the well. This factor of accelerating cost with depth 
has far-reaching significance in connection with future development 



COST OF PRODUCTION 29 

work as shallower deposits become progressively exhausted; it also 
represents a factor limiting the depths to which deposits may be 
commercially exploited. 

Once the oil is reached, there are many natural and artificial 
factors entering into the rate of production such as the pressure under 
which the oil occurs, its viscosity, the thickness and extent of the 
reservoir rock, the porosity and structure of the reservoir rock, the 
depth of the well, the distance from other wells, the condition of the 
equipment, the degree of competition, the price of oil, and many 
others. 1 In general, wells show an initial production which rapidly 
declines to a settled production which in turn gradually tapers off to 
an ultimate output so low that the well is abandoned. New wells 
are customarily reported in terms of their initial daily production, 
and this figure must be duly discounted in estimating the future 
output of the well. For instance, the average well in many parts 
of Oklahoma will produce daily during the first year of its life about 
25 per cent of its initial daily production. Wells in some localities 
show an initial daily production running up to thousands of barrels, 
but the average initial daily production in the older fields is much 
less. Thus in 1918, the average initial production in the Appalachian 
field was 16.2 barrels; in the Illinois field, 21.1 barrels; in the Mid- 
Continent field, 100.6 barrels; and in the Gulf field 331.9 barrels. 
During the same year the average daily production of all wells was 
4.7 barrels. 

Cost of Production. — The cost of producing a barrel of oil is an 
important figure which unfortunately is not precisely known in many, 
if not the majority of, field operations. The price of crude petro- 
leum does not bear the same degree of systematic relationship to the 
cost of production as is the case with ordinary commodities; the 
price of crude petroleum fluctuates independently of cost and may 
fall below the latter in times of overproduction. The unit produc- 
tion cost for a representative company operating in the Mid-Continent 
field, with a daily production of over 2000 barrels, was 2 dollars per 
barrel in 1919. This company realized 2 dollars and 40 cents a 
barrel on its sales, thus making a net profit of 40 cents a barrel. The 
operating costs of this company are given in Table 1 1 . 

The high proportion of the total cost that is credited against 
indirect and non-tangible elements such as depletion, dry holes, etc., 
is worthy of special note. In many operations the cost is incorrectly 
calculated through omission of these items and false book profits are 
shown. 

1 Ralph Arnold, The Petroleum Resources of the United States, Economic 
Geology, vol. 10, 1915. 



30 



THE TREND OF OIL-FIELD DEVELOPMENT 



Table 11. — Analysis of Operating Costs in 1919 of a Representative 
Producing Company in the Mid-Continent Field 

(Data from Bates and Lasky) 



Direct lifting expense 

Depletion of property 

Depreciation of physical equipment 
Non-tangible development expense . 

Dry holes and abandonments 

General expense 

Year's proportion of bonus 

Rentals of undeveloped acreage . . . 

Total 



22.50 


per 


cent 


18.50 


i < 


1 1 


15.60 


< i 


1 1 


14.55 


1 1 


< i 


13.20 


i c 


1 1 


6.40 


( ( 


1 1 


5.13 


1 1 


< i 


4.12 


< i 


< t 


100.00 


per 


cent 



The most important direct cost in producing oil is the lifting 
expense. The cost of lifting a barrel of oil for a representative com- 
pany in the Mid-Continent field during an average month of 1920 
was 63 cents. This figure is fairly representative of the field as a 
whole. An analysis of the components of this item of cost is given in 
Table 12. 

Table 12. — Analysis of the Unit Lifting Cost of a Representative Pro- 
ducing Company in the Mid-Continent Field for an Average Month 
in 1920. 

(Data from Bates and Lasky) 



Items 


Cents per Barrel 


Per Cent of Total 


Labor 

Overhead 


17.8 
15.6 
13.2 

8.8 
6.5 
1.1 


28.25 

24.75 
20.98 

13.96 

10.31 

1.75 


Repairs 


Teaming 


Supplies 


Cleaning 


Total 


63.0 


100.00 





According to figures compiled by the Federal Trade Commission * 
covering the majority of wells in California, the average cost of 
producing a barrel of oil was 27.4 cents in 1914, and 46.3 cents in 
1919, an increase of 69 per cent. The component of the total cost 

1 Summary of report on the Pacific Coast Petroleum Industry, Washington, 
April 7, 1921. 



THE COMPETITOR FACTOR IN PRODUCTION 



31 



falling under the head of lifting expense, including all expense 
incurred in raising the crude petroleum from the well and deliver- 
ing it into the producer's storage tanks, varies widely. In the 
case of flowing wells this expense ran as low as 1 cent per barrel with 
one company in 1914; while for very deep wells requiring pumping 
this item amounted to as much as 72 cents as shown by the records 
of another company for 1914. The cost of production in California, 
as elsewhere, shows a consistent relationship to the size of the opera- 
tions, as indicated in Table 13, 



Table 13. — Cost of Producing a Barrel of Oil in California in 1914 and 
1919, by Sizes of Companies 

(Data from Federal Trade Commission) 



Size of Company in Barrels of Annual 
Production 


Cost of Production in Cents per 
Barrel 


1914 


1919 


1,000,000-250.000 


28.6 

49.3 
72.1 


49.9 

74.9 

121.2 


250,000- 50,000 


Under 50,000 


Average of all 


27.4 


46.3 





The Competitive Factor 




Fig. 8. — Hypothetical square mile 
of oil-bearing territory, showing 
checkerboard disposition of small 
property holdings — the funda- 
mental cause of overproduction 
and waste. (Adapted from Requa.) 

eastern corner of his lot, B, E, 



in Production. — In the drilling and 
production of oil there is a unique 
competitive factor at work character- 
istic of no other substance, which has 
a far-reaching effect upon the econo- 
mic behavior of petroleum and serves 
to explain its economic peculiarities. 
This factor arises from the competi- 
tive extraction of a liquid from a 
common reservoir, as exemplified in 
the conditions prevailing in the aver- 
age oil-pool. Fig. 8, for example, 
represents 640 acres of oil land, where 
16 companies own 40 acres each. 
This is by no means an exaggerated 
conception, since properties of 10 
acres or even less are not uncommon. 
When A drills a well in the south- 
and F, must drill offset wells or suffer 



32 THE TREND OF OIL-FIELD DEVELOPMENT 

their property to be drained. For every corner well so drilled, three 
other corner wells must be put down; and for every line well, an 
offset line well must be drilled as protection. In time of over- 
production, operator F cannot afford to shut down, because A, B, 
C, G, E, I, J, or K, or any combination of them, may refuse to do 
likewise, and oil in the ground of F will be extracted from his prop- 
erty. Because of this condition, curtailment in output in practice 
conies only as a result of a natural decline in the flow of producing 
wells. ." The small producer, no matter what happens, is between 
the upper and nether millstones. He is powerless to control his 
own or his neighbor's production. . . . ' ; x 

The small property, overlying the oil-bearing reservoir in numbers 
and forming a checkerboard pattern, is prevalent in all the producing 
fields. Fig. 9 represents a typical portion of the dishing pool in 
Oklahoma, from a map published by the U. S. Geological Survey; 
the concentration of wells along the property lines is striking. The 
conditions outlined in the preceding paragraph as characteristic of a 
hypothetical square mile of territory pervade the whole production of 
petroleum. Competition between small holdings is inevitable and 
leads to the same results in the mass as it does in the simple group of 
properties. In the words of Max W. Ball, 2 " Ignorance there may be, 
carelessness there undoubtedly is, but back of ignorance, of care- 
lessness, of reckless, headlong methods, is the real cause — the fact 
that the average holding is so small that speed is the owner's sole 
protection. Let him be careful if he can ; let him be economical if he 
can find a way; but careful or careless, reckless or conservative, he 
must be speedy if he would survive. The small holding is his master.' ' 

The development and production of petroleum, therefore, are 
dominated b}^ a factor which arises from a reaction between human 
nature and the geological occurrence of petroleum and has a sig- 
nificance and importance difficult to exaggerate. This factor must 
be held in mind in viewing any phase of the oil industry; the eco- 
nomic aspects of petroleum cannot be appraised without its proper 
evaluation. Its effect has been to drive the production of petroleum 
forward insistently and without respite, and to render petroleum 
peculiarly resistent to retardation in periods of overproduction 
and times of reduced demand. It has contributed to making the 
United States the greatest producer of oil in the world, but it has 
assisted in reducing her reserve of oil by half. It has helped to 

1 M. L. Requa, Petroleum Resources of the United States, Senate Document 
363, 64th Congress, 1st session, 1916, p. 16. 

2 Adequate Acreage and Oil Conservation, Proc. Am. Min. Cong., Nov., 
1916, pp. 322-333. 



THE COMPETITIVE FACTOR IN PRODUCTION 



33 



sustain the phenomenal growth of automotive transportation by 
providing the basis of motor-fuel in ever-increasing quantities; 




LEGEND 

o - Rig 

• - Drilling weU 

• - Dry hole 

• - Cil well 
•* - Gas wett 

•*•■*■ Abandoned OH well 
•^-v-Abandoned gas well 

Fig. 9. — Map of a portion of the Cushing oil pool, Oklahoma, showing the sub- 
division of the area into small properties and the resulting grouping of walls 
along the property lines. (After Beal, U.S. Geological Survey.) 



but it has hidden the necessity for the automotive engine to evolve 
to higher levels of thermal efficiency and to lessened dependence 



34 



THE TREND OF OIL-FIELD DEVELOPMENT 



MILLIONS 
OF ACRES 



upon volatility in fuel. It has stimulated wide fields of application 
and supported important lines of industrial development; but it 
has created imminent problems in readjustment and reconstruction. 
Whether for better or worse, the effect of the competitive small 
holding in oil-field development has been extensive and profound. 

Bearing of Geology upon Oil-field Development. — During the 
past fifteen years the science of geology has been applied in growing 
degree to the location of the structures underlain by oil and to the 
measurement of underground conditions as a guide to exploitation. 

" One need look back only a few 
years — a very few years — to a time 
when oil men would have laughed 
with scorn at the statement that 
there was any connection what- 
ever between geology and the oil 
industry. To-day every impor- 
tant company in the world has its 
corps of oil geologists, and upon 
their opinion depends the invest- 
ment of most of the millions of 
dollars which annually go into 
prospecting and development 
work." l 

It is difficult to appraise close- 
ly the effect of geology upon the 
development of the petroleum 
resource. Wherever used, it has 
greatly increased the productivity 
of the drill and led to a fuller 
control of the natural extractive 
forces as well as alleviated the harm- 

Fig. 10-Oil acreage in the United ful effects of water > thou S h se 



1 



n 




States by years, 1913-1918; 
from U. S. Geological Survey. 



data riously handicapped in the latter 
respects by economic forces aris- 
ing from the small holding which 
worked at cross purposes with it. The widespread employment of 
geology has also apparently speeded up the rate of production as well 
as reduced its unit cost. Another important service rendered by 
geology in the oil-fields has been in the direction of measuring the 
unmined supply, with results by which both industrial and national 
policy will be guided in growing degree in the future. 

1 Ralph Arnold, Oil Geology in Relation to Valuation Work, Bull. Geol. Soc. 
America, vol. 31, 1920, pp. 433-440. 



PRODUCING OIL-WELLS 



35 



Table 14. — Oil Acreage in the United States 

(Data from the U. S. Geological Survey) 

(In thousands of acres) 





Fee 


Lease 


Ratio of Fee 
to Lease 


Total 


1913 
1914 
1915 
1916 
1917 
1918 


1051 
1445 
988 
1169 
1019 
1394 


7,088 
8,342 
9,014 
8,025 
11,436 
13,036 


14.8 

17.3 
11.0 

14.6 

8.9 

10.7 


8,139 

9,787 
10,002 

9,195 
12,455 
14,430 



Table 15. — Producing Oil-wells in the United States, October 31, 1920 
(Data from U. S. Geological Survey) 



Producing 

Oil-wells 

(Thousands of Wells) 



Average Daily 

Production per Well 

(Barrels) 



Pennsylvania 

Oklahoma 

Northwestern Ohio 

West Virginia 

Central and Eastern Ohio . . . 

Illinois 

Kansas 

New York 

California 

Central and Northern Texas 

Kentucky 

Northern Louisiana 

Indiana 

Coast Texas 

Wyoming and Montana .... 

Coast Louisiana 

Colorado 

Country 



67.7 
50.7 
21.1 
19.5 
18.5 

16.8 
15.7 
14.0 
9.49 
9.40 

7.80 
2.56 
2.40 
1.70 
1.00 

0.14 
0.07 



0.3 
6.0 
0.3 
1.1 

0.8 

1.7 

6.7 

0.2 

32.3 

22.9 

3.1 
31.6 

1.1 
49.7 
55.9 

34.6 
4.1 



258.60 



4.9 



36 



THE TREND OF OIL-FIELD DEVELOPMENT 




258.6 



f.OKLA: 
•V5-b'.7-' 




1 ^Vf i ^\i; 



Oil Acreage. — The acreage in the United States reported by the 

U. S. Geological Survey as oil-bearing is shown by years from 1913- 

1918 in Table 14 and Fig. 10. Most of the oil acreage is operated on a 

royalty basis, only 10.7 per cent of the total being held in fee in 1918. 

The total acreage classed as oil-bearing in 1918 

amounted to 14 million acres, or approximately 

22,500 square miles — 0.74 per cent of the area 

of the United States exclusive of Alaska. 

Producing Oil-wells.— On October 31, 1920, 
there were approximately 258,600 producing 
oil-wells in the United States, with an average 
daily production of 4.9 barrels per well. The 
number and average size of the wells in the 
various fields are shown in Table 15, where 
conditions may be seen to range from 14,040 
wells in New York averaging 0.2 barrel daily 
to 1000 wells in Wyoming and Montana averag- 
ing 55.9 barrels daily. (See also Fig. 11.) In 
general, the older fields have great numbers of 
small wells, while the newer fields are charac- 
terized by fewer wells of greater flow; there 
is a relationship also between productivity per 
well and the price of crude petroleum, since 
small wells must be pumped at added produc- 
tion costs. Thus in periods of rising prices 
many small wells, especially in the older fields, 
are brought into play, only to relapse into 
inaction when prices fall below their respective 
economic limits. 

The distribution of producing wells on 
January 1, 1919, more recent data in sufficient 
detail being unavailable, is shown on a map 
of the United States in Fig. 12. The relative 
Fig. 11. — Number of density of wells in the Appalachian field points 
producing oil wells to the i ntens i ty f exploitation in this region, 
in the United States r™ , . ,, , £ ■, -, 

() 'U 1Q20 b 1 he change in the number ol producing oil- 

fields- data from U. wells in various states for the period from 1913 
S. Geological Survey, to 1920 is shown in Table 16. It is apparent 
that in most states the number of producing 
wells is being augmented, which means that new wells are drilled in 
greater number than old wells become extinct. 

New Wells Completed. — The number of new wells completed in 
the various fields in each year from 1913-1920 is shown in Table 17, 




ILLINOIS.;..".-. 
16 8 * v; * 



KANSAS 
15.7 






'CALIFS, 

9.46' .'': 



ALL OTHERS 
' 111 5. 7 



FIGURES ARE 
THOUSANDS OF WELLS 



PRODUCING OIL-WELLS 



37 




_> ? 



L -i- ^r' \ ud\ W'*v.l 




rp 








W 




■+-< 




O 




■73 




>+H 




c 




>*, 




■+J 








tf. 




p 




QJ 




Q 




OS 








OS 




'- ' 




„ 




^ 




p 




Ki 


>, 


1-1 


0! 




> 


p 


J- 





P 




7 


1/J 








+a 


Tj 


si 


u 


X 


bO 

- 






T- 


z 


O 


Hi 


+J 


o 


P 




P 


X 


C 


p 


,P 





b£ & 



38 



THE TREND OF OIL-FIELD DEVELOPMENT 



Table 16. — Producing Oil-wells in the United States, 1913-1920, by 

States 

(Data from U. S. Geological Survey) 

(In thousands of wells) 





1913* 


1914* 


1915* 


1916* 


1917* 


1918* 


1920t 


California 

Colorado 

Illinois 

Indiana 


6.82 
0.09 
14.1 
3.81 
3.05 

0.97 
0.99 
10.7 
31.2 
24.1 

55 . 3 
3.54 

14.5 
0.20 


7.13 
0.09 

14.8 
3.40 
3.41 

1.03 
1.18 
11.1 
31.8 

27.8 

58.3 
3.85 

14.9 
0.26 


7.31 
0.09 
15.2 
2.90 
3.67 

1.06 
1.54 
11.0 
30.8 
29.1 

58.4 
4.33 

15 . 3 
0.32 


7.78 
0.09 
15.8 
2.53 
5.84 

1.86 
1.73 
11.2 
30.8 
31.7 

58.4 
5.19 

15.9 
0.42 


8.36 
0.09 
16.1 
1.94 
7.51 

2.89 
1.89 
11.4 
30.0 
35.1 

58.9 
6.02 

16.2 
0.72 


8.97 
0.10 
16.0 
1.80 
8.68 

3.62 
2.19 
11.4 
30.0 
37.7 

58.9 
7.13 

16.4 
0.94 


9.49 
0.07 

16.8 
2.40 

15.7 

7.80 
2.70 
14.0 
40.0 

50.7 

67.7 
11.1 
19.5 
1.00 


Kansas 


Kentucky 

Louisiana 

New York 

Ohio 


Oklahoma 

Pennsylvania .... 
Texas 


West Virginia. . . . 
Wyo. and Mont. . 

Total 


169 


179 


181 


189 


197 


203 


259 



* December 31. t October 31. 

Table 17. — Wells Completed in the United States by Fields, 1913-1920 
(Data compiled chiefly from Oil and Gas Journal) 





1913 


1914 1 1915 

t 


1916 


1917 


1918 


1919 


1920 


Eastern.. . 
Lima-Ind. 
C. Ohio... 
Illinois. . . 
Ky.-Tenn. 

Kansas. . . 
Oklahoma 
N.Texas.. 
N. La.... 
Gulf 

W 7 yoming . 
California. 

Total U.S. 


7,905 

2,174 

9,131 

761 

541 

731 

575 


5,909 
1,605 

768 
1,583 

179 

2,362 

8,297 
755 
448 
564 

421 


4,085 
452 
952 
756 
104 

1,088 

4,603 

295 

476 

859 

74 
240 


6,234 

966 

469 

1,459 

1,091 

3,637 

7,730 

576 

546 

1,113 

134 

645 


5,435 
800 

582 

647 

1,651 

3,469 
6,717 
1,020 

472 
1,562 

277 
736 


4,413 
693 
605 
397 

2,190 

4,671 
8,374 
1,225 
533 
1,677 

248 
589 


5,192 
824 
940 
370 

3,734 

3,442 
8,196 
3,564 
724 
1,238 

286 
559 


5,682 

1,057 

1,242 

385 

2,888 

3,163 

9,187 
6,479 
1,163 
1,760 

348 

587 


25,582 


22,891 


13,984 


24,620 


23,091 


25,615 


29,069 


34,021 



NEW WELLS COMPLETED 



39 



NUMBER OF 
WELLS DRILLED 



50,000 



40,000 



30,000 



20,000 



10,000 
9,000 
8,000 
7,000 
6,000 




1914 1915 1916 1917 1918 1 



1920 1921 



Fig. 13.— Wells completed annually in the United States by fields, 1913-1920. 
Data from Oil and Gas Journal. 



40 



THE TREND OF OIL-FIELD DEVELOPMENT 



while the data are plotted on a ratio chart ! in Fig. 13 in order to in- 
terpret the trend of this development work. The notable decline in 
drilling that characterized 1915 in response to the 1914-1915 period 
of overproduction in the Mid-Continent field is suggestive of the 
probable course of drilling in 1921, following the 1920 period of over- 
production. The marked increase in drilling activity in northern 
Texas and northern Louisiana during 1919-1920 in particular forms 
a conspicuous feature of the chart. 

Not all wells drilled strike oil, and the numerical relation between 
new oil-wells and dry holes over a period of years is shown in Table 18 
and Fig. 14 for the great Mid-Continent field. In this region, about a 



100 
90 
80 
70- 
60 
50- 
40- 
30- 
20- 
10- 
0- 



KANSAS OKLAHOMA 



N.TEXAS 



N.LOUISIANA 



n~n~ 



H£ 



srf; 



I- 



1912 1914 19'Q 1918 1920 1912 1914 1916 1918 1920 1912 1914 1916 1918 1920 1912 1914 ' 1916 1918 1920 

Fig. 14. — Ratio of dry holes to total wells drilled in the Mid-Continent field by 
years, 1912-1920. After data compiled from Oil and Gas Journal by Bates 
and Lasky. 



quarter of the drilling is usually non-productive. No distinct trend 
is revealed by the data as to whether drilling in the aggregate is 
becoming more successful by virtue of the widespread application 
of geological science, but presumably this latter factor is tending to 
offset the growing difficulty of locating productive formations as the 
unknown portion of the reserve is progressively diminished in size. 

Relation between Producing Wells and New Wells Completed. — 
For the period 1910-1920, the ratio of new wells to total producing 

1 The ratio, or semi4ogarithmic chart, is used frequently in this book because 
of its value in analyzing and interpreting economic data. By virtue of the 
scale, the slopes of the curves are proportional to the percentage changes, and 
comparisons between separate curves on the same chart may accurately be 
made. For a detailed description of the ratio chart consult Irving Fisher, 
The "Ratio" Chart for Plotting Statistics; and J. A. Field, Some Advantages 
of the Logarithmic Scale in Statistical Diagrams, Journal of Political Economy, 
vol. 25, 1917, pp. 805-841. 



NEW WELLS COMPLETED 



41 



Table 18. — Wells Drilled in Mid-Continent Field, by States, 1912-1920' 





Wells Drilled 


Percentage 
Dry 

Wells 


Initial Production 


Oil 


Dry 


Gas 


Total 


Total 
Barrels 


Average 
per Well 


Kansas : 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 


536 
1422 
1753 

610 
3142 
2712 
3463 
2638 
2*327 


160 
260 

270 
147 
370 
538 
935 
630 
690 


253 
334 
317 
331 
112 
177 
273 
174 
147 


949 
2016 
2340 
1088 
3624 
3427 
4671 
3442 
3164 


16.8 
12.9 
11.5 
24.1 
10.2 
15.7 
20.0 
18.3 
26.4 


7,245 

22,467 

18,932 

11,319 

248,846 

319,093 

342,853 

172,479 

181,845 


13.5 
15.8 
10.8 
18.6 
79.2 
117.6 
99.0 
65.0 
78.0 


Oklahoma: 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 


4712 
6965 
6410 
3397 
6086 
5027 
5529 
5203 
6303 


843 
1308 
1343 

885 
1120 
1360 
2071 
2278 
2036 


438 
578 
539 
342 
377 
410 
754 
715 
758 


5993 
8851 
8292 
4624 
7583 
6797 
8354 
8196 
9097 


14.1 
15.3 
16.2 
19.1 

14.8 
20.0 
24.8 
27.8 
30.8 


228,886 
334,050 
976,244 
1,036,170 
521,895 
365,314 
372,558 
487,939 
773,900 


48.6 

48.0 

152.3 

305.0 

85.8 
72.7 
67.4 
93.8 

122.8 


Texas (North): 

1912 

1913 

1914 

1915 

1916 

1917 

1918 


299 
581 
497 
307 
500 
728 
896 
2921 
4590 


124 
208 
221 
198 
145 
290 
285 
598 
1686 


11 
10 
26 
23 
38 
23 
10 
45 
233 


434 

799 

744 

528 

683 

1041 

1191 

3564 

6509 


28.6 
26.0 
29.7 
37.5 
21.2 
27.9 
23.9 
16.8 
29.5 


28,213 

57,435 

25,003 

52,663 

49,728 

51,128 

148,362 

1,736,712 

1,046,427 


94.3 

98.9 

50.3 

171.5 

99.5 

70.2 

165.5 

594.9 

228.2 


1919 


1920 


Louisiana (North) 

1912 

1913 

1914 

1915 

1916 

1917 


239 
356 
302 
349 
324 
302 
391 
518 
873 


62 

93 

94 

89 

141 

99 

85 

119 

242 


52 
70 
52 
26 
55 
56 
57 
67 
131 


353 
519 
448 
464 
520 
457 
533 
704 
1246. 


17.6 
17.9 
20.9 
17.0 
27.1 
21.7 
15.9 
16.9 
30.0 


84,098 
151,955 
102,193 
198,116 
54,871 
59,272 
173,460 
453,669 
640,853 


359.9 
426.8 
338.4 
567.7 
169.4 
196.3 
443.6 
875.7 
735.0 


1918 


1919 


1920 





* From compilation by Bates and Lasky from Oil and Gas Journal. 



42 



THE TREND OF OIL-FIELD DEVELOPMENT 



wells in the United States has averaged about 12 per cent; that is, 
roughly 1 well has been drilled each year for every 8 wells producing. 
The trend of the number of new wells in comparison with the old 
wells is shown for a number of years in Table 19. 



Table 19. 



-Producing Wells and New Wells Completed in the United 
States by Years, 1908-1920 





(Data from U 


. S. Geological Survey' 






Producing Wells, 

Dec. 31 

(Thousands of Wells) 


Average Daily 

Production per Well 

(Approximate) 

(Barrels) 


Wells Completed 

During Year 

(Thousands of Wells) 


1908 


142 




16.9 


1909 


147 


3.3 


18.3 


1910 


148 


3.7 


14.9 


1911 


153 


3.6 


13.8 


1912 


158 


3.8 


17.2 


1913 


169 


3.9 


25.6 


1914 


179 


4.1 


22.9 


1915 


181 


4.5 


14.0 


1916 


189 


4.4 


24.6 


1917 


197 


4.5 


23.1 


1918 


203 


4.7 


25.6 


1919 






29.0 


1920 


259* 


4.9* 


34.0 



* October 31. 



Fig. 15 illustrates how the mounting production of crude petro- 
leum has been dependent upon an increasing campaign of drilling 
and a growing number of producing wells. The general conformance 
in trend between the three curves appearing in Fig. 15 should not 
escape attention. 

The output of petroleum depends upon the total yield from old 
wells plus the production of new wells, each of the two components 
of the total being a function of the number of wells and their average 
productivity. Since wells display individually a declining production, 
the composite output can be maintained or increased only by adding 
new production in sufficient degree to compensate for the falling 
off in old production. For example, the average decline of produc- 
tion in the Mid-Continent field is 17 per cent of the preceding year. 1 

1 See Bates and Lasky, Statistical Review of Mid-Continent Field, National 
Petroleum News, March 30, 1921, p. 71. 



PRODUCING WELLS AND NEW WELLS COMPLETED 



43 



In 1919 this field produced 197 million barrels; if no new wells had 
been drilled during 1920, the production in 1920 would have fallen 
to 164 million barrels. In 1920, however, 14,000 oil-wells were 
drilled in this field and the total output of the field was 249 million 
barrels. Thus new production to the extent of 85 million barrels 
was contributed by the 14,000 new wells drilled during the year, or 
approximately 6000 barrels for each new well. The average initial 
daily production of the new wells in 1920 was 188 barrels; assuming 
an even rate of drilling throughout the year, the new wells averaged 
six months' performance each. Consequently, the average output 



MILLIONS OF BARRELS 

AND 
THOUSANDS OF WELLS 

500 



400 
300 

200 



100 

50 
40 

30 
20 





















BLS^ 
















{OtfiU* 


(\N 


AILUO* 


SJ3FJ; 




p 


K3DUCJ 


ION O 


c£ii2 


gPET, 




^jmoi 


SANDS 


l^-~ 








PROD 


JC1NG_ 


^nellS. 


_M_EN 


D OF Y 


























































































^ 










<*/ 


?t£«f/VQ 


lviK_ 


/ 


(jN 


1J0 


itfWjF'J 




---' 


^^ 


^ 


/' 


/ 




\ 


/ 
/ 
/ 










1909 


1910 


1911 


1912 


1913 


1914 


1915 


1916 


1917 


1918 


1919 


1920 



Fig. 15. — Comparison of producing wells, new wells, and production of crude 
petroleum in the United States by years, 1908-1920; data from U. S. Geo- 
logical Survey. 



per new well for the year would have been 34,300 barrels (188X365 
-7-2), if output had been sustained at the initial rate. The factor of 
decline, however, brought the performance down to 6000 barrels, a 
discount of 83 per cent. 

New production is not reported directly by the oil journals or 
other statistical sources, but may be calculated from a knowledge of 
the wells drilled and their average initial daily production, if the 
average annual rate of decline is also known. The trend of the 
number of wells drilled and their initial unit output in the Mid- 
Continent field is plotted on a ratio scale in Fig. 16 from data given in 
Table 18. The effects of the development of the Cushing pool in 
1914-1915, and of the bringing in of large wells in Oklahoma, North 



44 



THE TREND OF OIL-FIELD DEVELOPMENT 



Texas, and Louisiana in 1919 arc strikingly shown. The fact that 
no new pools of large size were brought into production during 1920 
resulted in a reduction in the average initial production per well 
from 253 barrels in 1919 to 188 barrels in 1920, as clearly shown in 
the chart. This decline in unit production, however, was compen- 
sated by the greater number of new wells brought in, so that new 



4000 
3000 

2000 
1500 

1000 
900 
800 
700 
600 
500 

400 
300 

200 
150 



100 
90 



70 









































TOTA 


. INITIA 


L PRODUCTION 












(L 


NITS OF 


,000 BBL 


-) 












































































































































/ 

/ 


^AVERAC 

\J 


,E INITI 
(UNITS O 


\\- PRO 

■ 1 BBL.) 


DUCTIOI^ 
/ 


) PER V\ 


'ELL 






/ 
/ 

1 


\ 

\ 
\ 
\ 






1 
1 








/ 
/ 
/ 


/ 


\ 

\ 
\ 






1 

l 
1 
i 
















_^^^^ 
















-^ 






























f 








































/.WELL 

(UNITS 


3 DRILL 
DF 100 W 


ED 

ills) 



























1913 1914 1915 1916 1917 1918 1919 1920 1921 



Fig. 16. — Trend of drilling activity in the Mid-Continent field 
by years, 1913-1920. 

production mounted from 48 million barrels in 1919 to 85 million in 
1920. 

Relation between Production and New Wells Completed.— The 
dependence of production upon the bringing in of new wells is 
shown for the Mid-Continent field in Fig. 17, in which the volume 
of production is plotted on a ratio scale against the number of new 
wells by months for the period of 1917-1921. It is immediately 



PRODUCTION AND NEW WELLS COMPLETED 



45 



apparent that the upward trend of the production curve is supported 
by a corresponding trend for the number of new wells. The latter 
curve, however, shows a marked seasonal variation, reaching a 
maximum in the summer months and declining during the winter 
months. This seasonal characteristic of drilling has a systematic, 
but deferred and modified effect upon production, which shows a less 
accentuated response to the season. In addition, the number of 



MILLIONS OF 

BARRELS AND 

THOUSANDS 

OF WELLS 

100 

90 
80 
70 
60 
50 











































































































































































































































































































PF 


ODL 


CTI 


)N\ 
























\ 


i 


_J_ 


\ 


■** 


1 /" 


t 


,y 


V 


J 
y 




J 1 


'^ A 


\ 










_- 






I 








V v\ 


'eLl 


s c< 


DMP 


Let 


-D 














A 
































/ \ 








































1 


















































































































































































































































19 


17 






19 


18 






19 


19 






19 


20 






19 


21 





SCALE OF 
INCREASE 

OR 
DECREASE 

m+ ioo^ 

•^+80 

7J+ 60 

+ 40 

tH 20 

o 



_ 

Z- lO 

VA— 20 

- 30 

- 40 

- 50J« 



Fig. 17. — Relation of wells completed to production in the Mid-Continent Field 

by months, 1917-1920. 

completions is influenced by general economic conditions, though 
to a less degree than might be expected, as illustrated by the rela- 
tively moderate decline in new completions during the industrial 
depression of 1920-21, the recession shown being little more than 
the normal seasonal decline. The competitive factor here is so 
powerful that drilling activity responds only with reluctance to 
depressing influences. 

Decline Curves. — The importance of drilling for the maintenance 
of a mounting production of petroleum is exemplified by the declining 



46 



THE TREND OF OIL-FIELD DEVELOPMENT 



production invariably displayed by a single well or group of wells, if 
unsupported by the bringing in of new wells. The typical course of 
an oil-producing property is shown in Fig. 18, where the production 
of a group of actual wells in Oklahoma is plotted on a ratio scale. 
By fitting a straight line to the curve and determining its slope, it 
barrels becomes apparent 

1 o.oooi 1 1 1 1 1 1 1 1 1 1 that the rate of 

decline averaged 40 
per cent a year for 
the ten-year period 
under observation. 
The production of 
the country is mere- 
ly a composite of a 
great number of in- 
dividual properties, 
each yielding de- 
cline curves after 
drilling is com- 
pleted. 

After a regional 
group of properties, 
or field, reaches its 
maximum produc- 
tion, it enters upon 
a long course of 
decline, as may be 
seen in Fig. 21, 
page 55. The en- 
trance upon the 
decline comes when 
the production of 
new wells fails to 
1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 make up for the 
Fig. 18.— Decline in output of a typical Oklahoma decrease of the old. 
property over a ten-year period; data from Arnold Although this situ- 
and Darnell. ation has overtaken 

a number of fields, 
it has not yet dominated the aggregate of fields, although it soon may 
be expected to do so. The decline curve of the country as a whole can 
scarcely be predicated on the basis of the decline curves of the older 
fields, since changing technology and rising price may be expected to 
considerably modify the decline curves we know from experience. 



5,000 



2,000 



1,000 



500 



300 



200 



100 



50 



30 



20 



10 



\ 






















^ 
























\\ 
























kLINE 


OF 40fc ANNUAL 


DECLINE 










\ ,ci 


JRVE SHOWING ACTUAL.] DECLINE 1 


N 








J^ 


RECOF 


DED PRODUCTIO 


M 










\\ 






































































Yv 






















v\ 






















V\ 






















V 




































































V 
























\\ 












































\ > 






















\ 


V 






















\ 












































\ 


\ 


\n 




















\ 











































FUTURE PRODUCTION BY DECLINE CURVES 47 

Estimating Future Production by Decline Curves. — Many 
thousand decline curves have been plotted by petroleum engineers, 
and afford a mass of recorded experience indicating that decline curves 
are notably symmetrical. It has also been proved by experience 
that such curves " can be extended beyond the actual period of 
production by continuing the curves in accordance with their sym- 
metry and that such projections, if skillfully made, provide fairly 
trustworthy estimates of the future production of the well." 1 The 
technique of employing production data for estimating oil reserves 
and the rate at which they may be recovered has been skillfully 
developed, and the valuation of oil properties, with due allowance for 
depreciation and depletion, has been made a quantitative procedure. 
The requirements of the U. S. Treasury in regard to the taxation of oil 
properties have greatly stimulated the accuracy of appraisals, since 
the rulings of the Treasury have been carefully drawn up on a scien- 
tific basis by a corps of able petroleum geologists and engineers, 
and carelessly prepared tax returns are not accepted. 

Conclusion. — Petroleum exploration and drilling are more or less 
amenable to the ordinary accelerating or retarding factors that affect 
industrial operations in general; but the output of crude petroleum, 
under the impetus of a small-unit competition that cannot afford to 
let up substantially under any circumstances, proceeds without 
regard to outside pressure. In consequence, the production of crude 
petroleum responds quite laggardly to changed conditions, being 
affected mainly in its exploration and drilling stage several months 
removed from production proper. The necessity for an ever- 
expanding campaign of drilling to replace the declining output of old 
wells places a cumulative burden upon oil- field exploitation which 
cannot be perpetually borne. Sooner or later new wells in adequacy 
cannot be found and the production of the country as a whole will 
inevitably display the decline that inexorably affects the well, the 
property, the pool, and the field; a waning output will supervene and 
the production curve of the country will describe a declining course, 
gentler in slope perhaps than the composite curves we now know from 
experience, forcing into prominence far-reaching changes in tech- 
nology and economic procedure, profoundly affecting the com- 
position and structure of the petroleum industry. 

1 Arnold, Darnell, and others, Manual for the Oil and Gas Industry under the 
Revenue Act of 1918, N. Y., 1920, p. 85. See also Beal, The Decline and Ultimate 
Production of Oil-wells, with Notes on the Valuation of Oil Properties, U. S. 
Bureau of Mines, Bull. 117, 1919. 



CHAPTER IV 
TREND OF OIL PRODUCTION 

The production of crude petroleum is strongly influenced by the 
geological conditions under which it occurs and the economic cir- 
cumstances under which it is dominantly exploited. Its liquidity 
and occurrence under pressure, on the one hand, lead to prolific out- 
flow when once productive deposits are tapped; while, on the other, 
its development from surface properties that divide the underground 
mineral unit into many arbitrary portions, institutes a competitive 
extraction that does not decline materially in the face of over- 
production. These circumstances, which are unique with petro- 
leum, coupled with the pioneer spirit that has been present in this 
country, are responsible for a mounting output remarkable for its rate 
of increase. Moreover, because of its ready adaptability to service, 
the quantity produced has always been able to force room for 
itself in low-use directions after the higher demands for its products 
were satisfied. To a considerable degree, therefore, the yield of 
crude petroleum has been promoted by factors forcing the output in 
advance of fundamental requirements, which, in turn, has stimu- 
lated a rigorous extension of markets and uses, but with surplus 
always in evidence to find an outlet as fuel. In short, supply has 
shaped demand. 

The Mounting Course of Production. — The economic character- 
istics of petroleum just outlined serve to explain the remarkable rise 
of production in this country from less than one million barrels in 
1860 to 443 million barrels in 1920. Fig. 19 depicts on a ratio scale 
the steep slope of the production curve over the past sixty years, 
from which it is apparent that the output has roughly doubled every 
ten years. A closer analysis of this curve reveals the fact that its 
trend from 1860-1880 averages 13 per cent a year; from 1880-1900, 
6 per cent annually; and from 1900-1920, 10 per cent yearly. 1 
The smoothness of the curve during the past decade, as compared 
with previous decades or production curves of other materials, is 

1 Determined graphically by fitting straight lines by inspection to the three 
portions of the curve. 

48 



COMPARISON WITH GROWTH OF COUNTRY 



49 



worthy of note as reflecting close conformity to a geometric pro- 
gression. 

Comparison with Growth of Country. — The production of crude 
petroleum has, of course, increased far more rapidly than population, 




Fig. 19. — Growth in the production of crude petroleum in the United States, 
by years, 1860-1920, compared with the output of pig iron, increase in popu- 
lation, and other indices. 

as illustrated by Fig. 19 which measures the rate of growth of each. 
In 1902 the per capita production of petroleum was 1 barrel, while 
by 1920 this ratio had increased to 4.3 barrels. In this respect 



50 TREND OF OIL PRODUCTION 

petroleum shares distinction with most of the other minerals, as 
contrasted with agricultural products which display rates of growth 
roughly parallel to the population increase. 

Of greater significance, however, is a comparison with the indus- 
trial growth of the country. Such a comparison is afforded by 
plotting pig iron production against crude petroleum output, as 
given in Fig. 19. An extensive investigation of the physical produc- 
tion of the United States by E. E. Day of the Harvard University 
Committee on Economic Research has shown that pig iron produc- 
tion is the best single index of manufacturing activity available and 
in fact shows a remarkably close conformance with the composite 
index calculated from a wide range of production data. 1 It is 
apparent from Fig. 19 that the curves for crude petroleum and pig 
iron show a fairly parallel development for the period 1860-1900, 
but from 1900 to 1920 petroleum displays the more rapid increase. 
It was during the latter period, of course, that the great oil-fields of 
the Mid-Continent, Gulf Coast, and California regions came into 
flush production, and the output of petroleum in consequence went 
ahead of the normal industrial growth of the country (see Fig. 22). 

An index of the growth in the country's productivity as pre- 
pared by Walter W. Stewart is introduced into Fig. 19 to afford 
further comparison of the degree to which petroleum output has 
forged ahead of the average production of all commodities in the 
past twenty years. The angle between the two curves is a measure 
of this divergence and is strikingly great; the conformance between 
the two curves from 1890 to 1900 should also be noted. 

The rise of automotive transportation, which has largely taken 
place since 1912, has profoundly affected the oil industry, and the 
relationship between crude oil production and automotive registra- 
tions is quantitatively shown by a comparison of Curves A and E in 
Fig. 19. The steepness of Curve E is notable, but is the characteris- 
tic slope of industrial youth. 

Relation to Other Countries. — For many years the United States 
has been producing around two-thirds of the petroleum brought to 
the surface in the world. Her two largest competitors in produc- 
tion have been Russia and Mexico, the three countries combined 
turning out around 90 per cent of the world's supply.. The trend 
of production in these leading countries is presented in Fig. 20, where 
the slopes of the lines are proportional to the percentage changes and 
the curves are consequently directly comparable. The marked 
parallelism between Curves A and B is readily understandable in 
view of the dominant contribution to the world's supply made by 
1 The Review of Economic Statistics, Dec, 1920, p. 367. 



TREND OF PRODUCTION BY FIELDS 51 

the United States. Production in Russia (Curve C) shows a rapid 
development in 1880-1890, a sharp but less accentuated rise between 
1890 and 1900, exceeding the output of the United States in 1898 
and the three years subsequent, and a fluctuating but somewhat 
declining course during the two decades of the present century, with 
an abrupt decline in 1917. 

Mexico (Curve D) displays a phenomenal growth in production 
from approximately 1 million barrels in 1906 to 163 million barrels 
in 1920, with a tendency throughout the past decade to increase 
at the rate of about 25 per cent a year. The curve for Mexican 
production is characteristically that of a youthful, flush producer, 
with somewhat greater steepness than normal because of the unusu- 
ally large wells in that country. 

The data upon which Fig. 20 is based, together with production 
figures for the less important countries, are presented in Table 20. 

Trend of Production by Fields. — The production of the United 
States as a whole is a composite of many individual fields, some 
young and growing in output, others mature and stable, still others 
old and waning in vigor. It is necessary, therefore, to bring the com- 
ponents of the country's supply into comparison, in order to analyze 
their relationships one to another and to the whole. For this pur- 
pose, the productions of the various oil-fields since 1900 are plotted 
on a ratio scale in Fig. 21, which reflects the trend of each contributor. 
The chart is somewhat confusing because of the necessarily large 
number of curves appearing upon it, but the complex of lines reveals 
unmistakably the tendency of all fields to spring quickly into prom- 
inence, to maintain themselves with fluctuations for a period, and 
then to enter upon a long decline. The curve for Illinois is typical 
and represents, with due qualifications, the course to be followed by 
the immature fields, such as North and Central Texas and the Rocky 
Mountain, of whose trend curves only the early, youthful portions 
appear in the chart. Study of Fig. 21 will emphasize the degree to 
which the maintenance of the total output is dependent upon the com- 
ing in of a growing number of new fields, as the older fields in increas- 
ing numbers enter upon a waning course. It is obvious, and indeed 
susceptible of rigorous mathematical proof, that a progression of this 
kind must eventually reach a point where the declining functions 
will dominate and force the composite curve downward. 

The significance of Fig. 21 can scarcely be over-stressed. The 
semi-logarithmic scale upon which the data are plotted yields a type 
of curve that truly reflects a picture of all the complex factors — 
physical, chemical, geological, economic, and psychological — that 
enter into production. The curves are not merely graphic expressions 



52 



TREND OF OIL PRODUCTION 



WH M 

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RELATION TO OTHER COUNTRIES 



53 



BARRELS 

1000 

900 
800 
700 

600 



lOO 
90 
80 
70 
60 
50 

































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SCALE OF 

INCREASE OR 

DECREASE 

100 <fo 

+ 80 

60 

i+ 40 
20 

O 

I- IO 
I- 20 
30 
40 



50# 



1890 



1900 



1910 



1920 



Fig. 20. — The annual production of crude petroleum in the United States com- 
pared with other leading countries, 1880-1920. 



54 



TRKNI) OF OIL PRODUCTION 



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TREND OF PRODUCTION BY FIELDS 



55 




1900 



1905 



1910 



1915 



1920 



Fig. 21.— Trend of petroleum production in the United States, 1900-1920, 

by fields. 



56 



TREND OF OIL PRODUCTION 



of statistics; they are visualizations of economic forces; and while 
these forces cannot always be resolved into their components, they 
can be observed, measured, weighed against one another, and with 
due precaution projected ahead. 

Production data by states and by fields for a number of years 
past are given in Tables 21 and 22. 



Table 22. — Petroleum Produced in the United States, 1913-1920, by 

Fields 











Data from U. S 


Geological Survey 










Year 


Appala- 
chian 


Lima- 
Indiana 


Illinois 


Mid- 
Continent 


(jULF 


Rocky 
Mts. 


Califor- 
nia 


TT 
United 

States 


*0 to 

|S 


o 

a 
C 


■s. 

si 


CQ 

o 


Si 


to 

o 


"o tO 

co"S 

G - 

•2 a 


to 
o 

X 
<p 

PI 


*° co 

Si 

.2 5 


to 

O 

0) 


"o to 

Z J ~ 
J 5 

■an 


to 
o 

C 


*© to 

CO"q3 

rG« 
3 


to 

o 

X 

o 
"0 

G 


*o (O 
S^ 
•2 5 
Sffl 


t» 
o 

X 
9 

G 


1913 


25.9 


100 


4.77 


100 


23.9 


100 


84.9 


100 


8.54 


100 


2.60 


100 


97.8 


100 


248 


100 


1914 


24.1 


93 


5.06 


106 


21.9 


92 


98.0 


115 


13.1 


153 


3.78 


145 


99.8 


102 


266 


107 


1915 


22.9 


88 


4.27 


90 


19.0 


80 


123 


145 


20.6 


241 


4.45 


171 


86.6 


89 


281 


113 


1916 


23.0 


89 


5.06 


106 


17.7 


74 


137 


161 


21.8 


256 


6.48 


249 


91.0 


93 


301 


121 


1917 


24.9 


96 


4.27 


90 


15.8 


66 


164 


193 


24.3 


285 


9.20 


354 


93.9 


96 


335 


135 


1918 


25.4 


98 


3.91 


82 


13.4 


56 


179 


211 


24.2 


284 


12.8 


492 


97.5 


100 


356 


144 


1919 


29.2 


115 


3.44 


72 


12.4 


52 


197 


232 


20.6 


241 


13.6 


523 


102 


104 


378 


152 


1920 


30.5 


118 


3.06 


64 


10.8 


45 


249 


294 


26.8 


314 


17.5 


673 


106 


108 


443 


178 



Composite Character of Production. — The composition of the 
production curve for the whole country is interpreted in a differ- 
ent manner in Fig. 22, in which the yields of the various fields are 
superimposed on a natural scale. This chart clearly indicates the 
wedge-like character of the growth — how a mounting production 
becomes increasingly dependent upon the development of new fields. 
It also stresses the dominant position held by Oklahoma and Cali- 
fornia and points to the great number of smaller contributors that 
must be found to compensate for the decline of these major fields. It 
should be observed, moreover, that Oklahoma started downward in 
1919 only to be temporarily revived in 1920 by the sharp rise in crude 
oil prices that came in the first quarter of that year, and that Cali- 
fornia is rapidly approaching its peak. The important contribution 
made by North and Central Texas in 1919-1920 should not escape 
attention nor should the fact that this field has already seen its best 
days. Fig. 22 may be profitably examined in conjunction with 
Fig. 21 since the two present complementary analyses of the trend of 
production that may serve as the basis of generalizations as to the 
future. 



COMPOSITE CHARACTER OF PRODUCTION 



57 



Figs. 21 and 22 show clearly the marked stimulation in output that 
came in 1920 under the influence of the price advance. While the 
extent of this increase in output is an encouraging indication that 
there is still considerable resilience in the situation, it should be 
remembered that the cost was a proportionately greater advance in 
price, and there is obviously a limit to increases gained in this manner. 
(See Chapter 18.) 

On the whole, Figs. 21 and 22 indicate that production in the 
United States is fast approaching its limit, and there is much evi- 
dence to suggest that 1921 will register the maximum rate of output 



MILLIONS 
OF BARRELS 

440 




1890 1895 



1920 



Fig. 22. — Production of crude petroleum in the United States by years, 1890-1920, 
showing the relative importance of the contributions made by the individ- 
ual fields. 



that this country will enjoy. It should be observed that this 
deduction is based upon a study of production curves, that is to 
say, is the result of mathematical analysis, and is not predicated 
upon estimates of the size of the unmined supply. The apparently 
limited quantity of petroleum still underground, however, offers 
additional and corroborative evidence of our proximity to the peak 
of production in the United States. 

Comparative Importance of Fields. — The relative importance of 
the major producing fields in the United States is shown in Fig. 23, 
where the dominance of the Mid-Continent and California produc- 
tion is outstanding. The main advance in the country's output 



58 



TREND OF OIL PRODUCTION 



in 1919-1920 is readily seen to lie in the increased productivity of 
the Mid-Continent field, comprising Oklahoma-Kansas, North and 
Central Texas, and North Louisiana. 

The relative importance of the two major fields is shown in per- 
centage form in the table following: 



Table 23. — Percentage of Country's Total Output of Crude Petroleum 
Contributed by the Mid-Continent and California Fields, 1913-1920 





Mid-Continent 








Year 


(Okla. Kans., N. 

and C. Texas, 
N. La.) 
Per Cent 


California 
Per Cent 


Others, 
Per Cent 


United States, 
Per Cent 


1913 


34 


39 


27 


100 


1914 


37 


38 


25 


100 


1915 


44 


31 


25 


100 


1916 


46 


30 


24 


100 


1917 


49 


28 


23 


100 


1918 


50 


27 


23 


100 


1919 


52 


27 


21 


100 


1920 


56 


24 


20 


100 



The Widening Gap between Production and Consumption. — 

While the production of crude petroleum in the United States has 
been growing at a rapid rate (see Fig. 19 and Table 22), the con- 
sumption of crude petroleum, since 1915 at least, has been increasing 
still more rapidly, as shown by the following series of index numbers : 



Table 24. — Comparison of Domestic Production and Consumption of 
Crude Petroleum, in Percentages of the Figures in 1913 

(Figures for 1913-100) 



Year 


Production 


Consumption 


1913 


100 


100 


1914 


107 


100 


1915 


113 


105 


1916 


121 


122 


1917 


135 


145 


1918 


144 


158 


1919 


152 


161 


1920 


178 


204 



GAP BETWEEN PRODUCTION AND CONSUMPTION 



59 



It is thus seen that from 1913— 
1920 domestic production in- 
creased 78 per cent, while dur- 
ing the same period consumption 
advanced 104 per cent. The 
discrepancy was made possible 
by the growing imports from 
Mexico, as will appear from 
examination of Table 25, which 
shows also the method employed 
in calculating consumption. 

The monthly trend of supply 
and demand for the period 1917- 
1920 is shown in comparative 
form in Fig. 24, which represents 
an interpretation of the current 
situation. Annual data show 
the broad features, but in order 
to appraise the fluctuations within 
the year, recourse must be had to 
monthly statistics. The curves 
appearing in Fig. 24 depict the 
economic forces at work, and 
should be looked at as a moving 
picture of what is transpiring. 
The semi-logarithmic scale upon 
which the data are plotted re- 
duces the fluctuations to a per- 
centage basis, thus revealing 
the trends, permitting accurate 
comparisons to be made, and 
interpreting the change in terms 
of their economic signifi- 
cance. 

In view of the general slow- 
ing down in industrial activity 
during 1920, it is interesting to 
observe the increasing production 
throughout the year, together 
with the sharply mounting im- 
ports. These conditions alone 
were shaping up for a temporary 
overproduction, which required 




KL/r^-r- 



APPALACHIAN 



OKLAHOMA 



TX 



k/m§ 



COA'ST 



mm 

OUNTAIN 



BARRELS 
2 



& O 



1 2Q 



o 

2 

\ 1 

O 



2 4 



Fig. 23. — Monthly production of crude 
petroleum during 1919 and 1920 by 
fields. Note the outstanding impor- 
tance of the Mid-Continent field , 



60 



TKUND OF OIL PRODUCTION 



only the decline in demand toward the close of the year to precipi- 
tate a falling market. 

Trend of Stocks. — Between production and utilization there is a 
supply of crude petroleum of considerable magnitude held in storage 

























































































































































































































































































/ 








\ 
















BULLIONS 

OF 
BARRELS 










s 


A 


/ER 


^GE 


PRI 


" E \ 






f 








\ 








200 

100 

90 
80 

70 
60 
50 

40 


is 


















Pit 


E L 


INE 


&. N 


ARK 


ETU 


IG C 


a-s 


ST( 


>CKS 


A- 


,s 


S 
























































































































































































DC 


MES 


TIC 


cor 


SUI\ 


IPTI 


DN 










































"%/ 










MAF 


IKE* 


"ED 


PRO 


DUC 


TIO 


K 






fpr* 




<T~^ 


^ 


r*^** 




'' 






20 

10 
9 
8 

7 
6 
5 
A 

3 

2 


^ 


~^rrr 


»"""^ 




V ( 


:ru 


)E ( 


{UN 


TO 


'V 

STIL 


LS 












^ 
















%,' 


\_ 


' R 


EFIT 


IER^i 


ST 


> 

DCK 


5 


•' 




'' 


7 s 


V 


\ 






















































































































































































IMP 


ORT 


S— - 


































A 




A 


V 






























A 


/ 


A 


r 


/ 






























j 


/ 


^/ 








































































19 


17 






19 


18 






19 


19 






19 


20 






19 


21 





DOLLARS 

F€R 
BARREL 

4 
3 



SCALE OF 
INCREASE 

OR 
DECREASE 

t--+ioo$ 

480 
+60 



-+40 



1, 

10 

20 

2-40 



■80% 



Fig. 24. — Trend of the crude petroleum situation in the United States by months, 

1917-1921. 



by (a) producers, (6) pipe-lines and tank-farms, and (c) refineries. 
Beginning August, 1920, the U. S. Geological Survey classified the 
petroleum in storage according to the division given above, but here- 



TREND OF STOCKS 



61 



tofore statistics of stocks have been available for (a) pipe-line and 
marketing companies, and (b) refineries. Stocks, as usually referred 
to in the literature, represent the oil held in storage by the pipe-line 
and marketing companies, and unless otherwise specified the term 
is so used in this book. 

The size of the country's stocks of petroleum is shown in Table 25 
for the period 1913-1920 in comparison with production and con- 
sumption. It is apparent that the stocks have for some years aver- 
aged around 140 million barrels, although both production and con- 
sumption have been rapidly progressing in size. While the stocks 
from 1913-1916 may have been a trifle ample as a working reserve, 
the ratio of stocks to consumption has rapidly fallen subsequently. 
This ratio may be advantageously expressed in terms of the number 
of months during which the stocks could supply the country's require- 
ments, and the expression shown in Table 26 for 1909-1920 is illumi- 
nating, for it indicates that our working reserves of crude petroleum 
have fallen from an eight-months' supply in 1910 to a three-months' 
supply in 1920. 

Table 25. — Comparison of Domestic Production and Consumption of 
Crude Petroleum by Years, 1913-1920 

(Data from U. S. Geological Survey) 

(In millions of barrels) 



Year 


Domestic 

Pro- 
duction 


Imports 


Exports 


Net 
Imports 


Avail- 
able 
(Prod. 

+ Net 
Imports) 


Stocks 

End 

of 

Year 


Changes 

in 

Stocks 


Consump- 
tion 


Crude 

Run 

to 

Stills 


1913 


248 


17.8 


4.6 


13.2 


261 


122.8 


- 0.1 


261 




1914 


266 


17.2 


2.9 


14.3 


280 


141.6 


+ 18.8 


261 


191 


1915 


281 


18.1 


3.7 


14.4 


295 


163.8 


+22.2 


273 




1916 


301 


20.6 


4.0 


16.6 


318 


162.4 


- 1.4 


319 


247 


1917 


335 


30.1 


4.0 


26.1 


361 


146.0 


-16.4 


378 


315 


1918 


356 


37.7 


4.9 


32.2 


387 


121.7 


-24.3 


413 


326 


1919 


378 


52.8 


5.9 


46.8 


424 


127.9 


+ 6.2 


418 


361 


1920 

L 


443 


106 


8.0 


98.0 


541 


138.2* 


+ 10.3 


531 


434 



* Includes Mexican stocks held in United States by importers (5.8 million barrels) 



Stocks, of course, are a rather sensitive barometer of the month- 
to-month fluctuations in the relation between supply and demand, 
any sustained accumulation of stocks being normally followed by a 
decrease in market price, and vice versa. 



62 TREND OF OIL PRODUCTION 

Table 26. Trend of the Stocks of Crude Petroleum in the United States 
in Terms of the Country's Requirements 



Year 


Stocks at End of Year 
(Millions of Barrels) 


Monthly Consumption 
(Millions of Barrels) 


Number of Months 

Supply Represented by 

Stocks 


1909 


117 


13.9 


8 . 4 months 


1910 


131 


16.0 


8.2 " 


1911 


137 


17.6 


7.8 " 


1912 


123 


20.0 


6.2 " 


1913 


123 


21.8 


5.7 " 


1914 


142 


21.8 


6.5 " 


1915 


164 


22.8 


7.2 " 


1916 


162 


26.5 


6.1 " 


1917 


146 


31.4 


4.7 " 


1918 


122 


34.5 


3.5 " 


1919 


128 


35.0 


3.7 " 


1920 


134 


44.3 


3.0 " 




1919 192C 1921 



Fig. 25. — Chart showing the change in the actual and relative quantity of crude 
petroleum in storage in the United States by years, 1909-1920. 

Conclusion. — It may be gathered from the data presented in 
this chapter that the production of crude petroleum in the United 
States has enjoyed a remarkable and sustained rise to the startling 
level of 443 million barrels in 1920; that the rapid increase in output 



CONCLUSIONS 63 

has drawn into production a growing proportion of the resource; 
that the mounting volume of oil thrown on the market has pro- 
moted a wide range of uses which in turn have gathered impetus and 
stimulated a consumption met with difficulty by the combined pro- 
duction of the United States and Mexico. The situation has shown 
an accretionary, accelerating growth which cannot be indefinitely sus- 
tained and there is much evidence to sound a warning that the turn- 
ing-point is near when our growing dependence upon petroleum can 
no longer be met by efforts looking merely to an increase in supply, 
but changes in technology and economic procedure will be called 
into action to multiply the service obtained from the quantities 
available. 



CHAPTER V 
THE TRANSPORTATION OF CRUDE PETROLEUM 

The liquidity of crude petroleum has led to the development of a 
remarkable system of transportation without parallel in its cheapness 
and efficiency. This system comprises a network of pipe-lines 
spread over much of the country, supplemented by specially designed 
tank-steamers for coastwise and foreign trade. A relatively small 
quantity of crude petroleum is handled by the railroads in tank-cars. 
To a preponderant degree, therefore, the movement of crude oil is 
independent of the normal transportation agencies upon which com- 
modities in general depend. 

Pipe-lines. 1 — The oil pipe-line, first introduced about fifty-six 
years ago, has so developed that now the American petroleum indus- 
try is served by a pipe-line system nearly 50,000 miles in aggregate 
length, approximately 18 per cent of the combined length of all the 
railroads. The magnitude of this arterial complex pulsating with 
oil has been frequently overlooked in considering the role played by 
transportation in the resource development of the United States. 
A comparison with the railway systems of the country is afforded in 
Table 27. 

Table 27. — Comparison between the Oil Pipe-lines and the Railroads of 

the United States 





Number of 
Miles 


Relative, 
Per Cent 


Number of Miles 

per 100 Square 

Miles of 

Territory 


Estimated 

Value 

(Millions of 

Dollars) 


Oil pipe-lines * . . . . 
Railroads f 


45,500 

253,626 


18 

100 


1.53 

8.53 


500 
19000 



* Estimated for 1920: Trunk lines, 34,000 miles; gathering lines, 11,500 miles, 
t 1917. 



1 For a detailed, though slightly out of date, description of the Mid-Continent 
pipe-line system, consult Report on Pipe-line Transportation of Petroleum, 
Federal Trade Commission, 1916. The pipe-lines of Wyoming are described in 
Report on the Petroleum Industry of Wyoming, Federal Trade Commission, 1921. 

64 



PIPE-LINES 65 

As the term is used in the oil industry, a pipe-line is not merely 
a line of pipe, but consists of the whole plant employed in the process 
of transportation, including initial, intermediate, and terminal 
tankage systems, power plants, pumping stations, systems of com- 
munication along the line, and all other things necessary to safely 
and expeditiously move the oil from one point to another. 1 The 
pipe-line system includes trunk-lines extending from the oil-fields 
to the refining centers and gathering lines in the producing areas 
that act as feeders to the main channels. There are approximately 
34,000 miles of trunk lines in the United States, the most important 
being shown in Fig. 26. The combined length of the gathering 
lines is estimated at 11,500 miles. The relation of gathering lines 
to trunk lines in a large oil-pool is illustrated in Fig. 27. 

The pipes for conveying the oil are made of steel and are laid near 
the surface of the ground. The main lines average about 8 inches in 
diameter, with the gathering lines smaller. The oil is forced through 
the pipes by means of pumps operated by steam or internal combus- 
tion engines. The pumping stations in the eastern and mid-western 
region are usually about 35 miles apart ; but in California the average 
interval is about 12 miles because of the greater viscosity of the oil 
and the necessity of heating heavy oil to facilitate its movement. 
The construction cost of most of the lines was about 9000 dollars per 
mile, based on 8-inch pipe; and the average pumping station cost 
from 130,000 to 250,000 dollars. In California in 1914 the cost of 
building an 8-inch line, including stations, was about 20,000 dollars 
a mile. 

Oil is produced from thousands of wells, by hundreds of pro- 
ducers, but for the most part is transported by a few large pipe-line 
companies. The oil from the wells is first run directly into the 
producer's tanks, where it has a chance to settle. From there it 
flows by gravity or is pumped to the pipe-line company's working 
tanks, either through lines owned by the producer or through gath- 
ering lines established by the pipe-line company. The common 
practice is for the pipe-line company to operate gathering lines 
which begin at the producer's tanks and to follow up new production 
with pipe-line extensions. 

The carrying capacity of a pipe-line varies with the size of the 
pipe, the distance between pumping stations, the pressure at which the 
oil is pumped, and the viscosity of the oil. The cubic capacity of an 
8-inch line is 328 barrels per mile. The daily capacity of an 8-inch 

1 For a discussion of the oil pipe4ine, consult Forrest M. Towl, Pipe4ines, 
Existing Facilities and Future Needs, American Petroleum Institute, Nov. 17, 
1920. 



66 



THE TRANSPORTATION OF CRUDE PETROLEUM 




PIPE-LINES 67 

pipe-line, operating at a pressure of 800 pounds per square inch and 
transporting oil of 38° Baume gravity, is 21,000 barrels. The oil in 
transit in pipes east of California at the end of 1920 was 16,700,000 
barrels. 

The average daily production of crude petroleum in the United 
States in 1920 was approximately 1,210,000 barrels. Practically 
all of this oil was transported by pipe-line. Some of it moved 
only a few miles, while some was probably carried upward of 1500 
miles. About 150,000 barrels per day was taken to the Atlantic 
seaboard through a connecting system of lines. A large quantity 
was delivered to Baton Rouge and the Gulf ports through long lines. 
Probably the entire quantity, approximating 200,000 tons daily, 
moVed on the average more than 500 miles. 1 The movement there- 
fore approximated 100 million ton-miles per day. The daily ton- 
miles of freight hauled by the railroads of the country are slightly 
more than 1 billion, indicating that the pipe-line systems reduce 
the freight load of the United States by something like 10 per 
cent. 

In addition to the tanks that are an integral operating part of the 
pipe-line system, most of the pipe-line companies provide facilities 
for storage of crude petroleum in large quantities. Some of the 
storage-tank farms operated by the pipe-line companies are located 
in the oil-fields, while others are at convenient points along the line 
or at its terminus. A tank-farm consists of a group of circular steel 
tanks, generally of 37,500 to 55,000 barrels capacity, separated by 
earthen banks as a fire protection. Some of the tank-farms are very 
extensive, the largest having capacities upward of 10 million barrels. 
The gross pipe-line and tank-farm stock of crude petroleum east of 
California at the end of 1920 was 107 million barrels. 

Congress has imposed upon the pipe-line companies the obliga- 
tions of common carriers and has placed them under the supervision 
of the Interstate Commerce Commission " for the purpose of assuring 
that the charges and facilities for transportation shall be reasonable 
and that there shall be no discrimination between shippers." Up 
to the present, however, comparatively little use has been made of 
pipe-lines as common carriers, most of the oil produced having 
been purchased by the pipe-line companies at the producer's tanks, 
or else handled by integrated interests engaged in the combined 
activity of production, transportation, and refining. Transporta- 
tion by pipe-line is, of course, much cheaper than by railroad; and 
the economy of pipe-line transportation has for the greater part 
been reflected in lower prices for oil products. The cost of trans- 

1 Towl, loc. cit. 



68 



THE TRANSPORTATION OF CRUDE PETROLEUM 



porting crude oil in 1913 from a number of points in the Mid-Con- 
tinent field to important refining centers is shown in Table 28. 



Table 28. — Cost of Transporting Crude Oil in 1913 by Pipe 
(Data from Federal Trade Commission) 


-LINE 


Shipping Point 


Destination 


Distance 

(Miles) 


Trunk- 
line Cost 
per 
Barrel 
(Cents) 


Gathering- 
line Cost 
per 
Barrel 

(Cents) 


Combined 

Trunk 

and 

Gathering 

Cost per 

Barrel 

(Cents) 


Cushing Pool.. . 
Gushing Pool . . . 
Cushing Pool . . . 
Cushing Pool.. . 

Glenn Pool .... 
Electra Pool . . . 
Electra Pool . . . 
Electra Pool. . . 


Neodesha, Kans 

Woodriver, 111 

Griffith, Ind 

Port Arthur, Tex .... 

Baton Rouge, La ... . 

Fort Worth, Tex 

Beaumont, Tex 

Sabine, Tex 


117.01 
505.54 
686.05 
583 . 09 

513.60 
137 . 74 
448 . 82 
479 . 36 


2.64 

8.45 
11.03 
21.61 

22.03 

3.48 

11.34 

19.16 


3.99 
3.99 
3.99 
5.08 

3.99 
5.45 
5.45 
5.45 


6.63 
12 . 44 
15 . 02 
26.69 

26.02 

8.93 

16.79 

24.61 



The differences between the published pipe-line tariff rates and 
railroad rates for shipping crude petroleum is indicated in Table 29. 

Table 29. — Comparison of Pipe-line and Railroad Tariff Rates for 
Shipping Crude Oil between Characteristic Points in 1916 
(Data from Federal Trade Commission) 



Shipping Point 


Destination 


Railroad 
Tariff- 
Rate 
per 
Barrel 


Trunk 
Pipe-line 
Tariff 
Rate 
per 
Barrel 


Margin 
Between 
Railroad 

and 
Pipe-line 

Rates 


Gushing Pool . . . 
Cushing Pool . . . 
Cushing Pool . . . 
Cushing Pool. . . 
Cushing Pool . . . 

Cushing Pool . . . 
Cushing Pool . . . 
Gushing Pool . . . 
Cushing Pool . . . 
Cushing Pool . . . 

Cushing Pool . . . 
Cushing Pool . . . 
Cushing Pool . . . 
Glenn Pool 


Neodesha, Kans 

Woodriver, 111 

Whiting, Ind 


$0,311 

.544 

.622 

.979 

1 . 054 

1.054 
1.348 
1.348 
1.320 
1.403 

.392 
.329 
.466 
.544 


$0,200 
.340 
.420 
.580 
.590 

.590 
.700 
.685 
.700 
.700 

.200 
.275 
.400 
.375 


$0,111 
.204 
.202 
.399 
.464 

.464 
.648 
.663 
.620 
.703 

.192 
.054 
.066 
.169 


Cleveland, Ohio 

Pittsburgh, Pa 

Buffalo, N. Y 

Philadelphia, Pa 

Marcus Hook, Pa 

Baltimore, Md 

Bayonne, N. J 

West Dallas, Tex 

Fort Worth, Tex 

Port Arthur, Tex 

Baton Rouge, La 



PIPE-LINES 



69 



The pipe-line has exerted a far-reaching influence upon the petro- 
leum industry. By rapidly following up new oil-field developments, 
it has afforded the ever-mounting flow of crude petroleum an outlet 




o 

ft 

83 

I 



to markets. Without the pipe-line, the petroleum resource could 
not have been brought so rapidly into full production; and, in turn, 
without the notable growth in oil exploitation that this country has 
experienced, the pipe-line could not have been stimulated to its 
present spread. The pipe-line is by nature a large-scale enterprise, 



70 



THE TRANSPORTATION OF CRUDE PETROLEUM 



and it is not surprising to find the development of the pipe-line 
systems of the country largely due to the efforts of large aggregates 
of capital. According to the Federal Trade Commission, 1 about 
69 per cent of the trunk pipe-line mileage of the country is in the 
hands of the Standard companies and practically all of the remainder 
belongs to large independent interests. Though interstate pipe- 
lines are legally common carriers, they are used mainly by the oil 
companies owning them or affiliated with them. This intimate con- 
nection with pipe-line transportation is an important advantage to 
refineries in obtaining adequate supplies of crude petroleum and 
getting them at the lowest cost. 

While the concentration of pipe-line control has placed the dis- 
position of the crude-oil production of the country for the most part 
in relatively few hands, the degree of integration attained may be 
looked upon as the inevitable result of the effort to market ade- 
quately the accelerating output of crude petroleum. With produc- 
tion highly individualistic and at all times tending to outstrip devel- 
oped demands, it devolved upon the manufacturing and distributing 
activities to facilitate the flow of the raw material to the distributing 
centers in proximity to demand, if full advantage was to be taken 
of the opportunities offered. Accordingly the pipe-line became part 
of the developmental effort, rather than an outgrowth of the competi- 
tive, individualistic efforts in the field of production. 

Oil Tankers. — For ocean transport, the oil tanker represents the 
most efficient agency for carrying petroleum, and of recent years, 
with the development of the oil-fields of the Gulf Coast and Mexico, a 
growing number of oil tankers have come into use. A comparison 
of tanker tonnage with the total merchant tonnage for the world is 
afforded in Table 30. 



Table 30. — Comparison between the Oil-tanker Tonnage and the Total 
Merchant Tonnage of the World 



Year 


Tankers 

(In Thousands of Gross 

Tons) 


Total Steam TonnageJ 

(In Thousands of Gross 

Tons) 


Tankers 

(In Percentage of 

Total) 


1914 
1920 


2325* 
5216* 


45,404 f 
53,905 f 


5.1 

9.7 



* End of year. 



t June 30. 



| Lloyd's Register of Shipping 



It is thus apparent that the tanker tonnage of the world is not only 
nearly 10 per cent of the total merchant tonnage, but tanker con- 

1 Report on the Advance in Price of Petroleum Products, Washington, 
Junel, 1920, p. 21. 



OIL TANKERS 



71 



struction has been growing at a much greater rate than other types of 
shipping. Especially has the building of tankers in the United 
States been speeded up since 1917, as indicated in Table 31. 

Table 31. — The Growth of Oil-tanker Tonnage in the United States and 
the Rest of the World by Years, 1913-1921 * 





Number of Tankers 






Year 






D. W. 

Tonnage 


Per Cent 
Increase 








American 


Foreign 


Total 






1913 


52 


283 


335 


2,156,987 




1914 


54 


290 


344 


2,325,326 


7 


1915 


92 


283 


375 


2,538,070 


9 


1916 


124 


284 


408 


2,845,414 


12 


1917 


152 


301 


453 


3,331,368 


10 


1918 


189 


429 


618 


4,699,659 


41 


1919 


242 


402 


644 


4,995,122 


6 


1920 


298 


376 


674 


5,215,961 


5 


1921 f 


403 


512 


915 


7,554,724 


43 



* Data from The Lamp, April, 1921, p. 5. These figures differ from those reported in 
Lloyd's Registry of Shipping, but are probably the most accurate compilation available. 

t On the assumption that the tonnage building the first of the year will be completed 
during the year. 

The bulk of the international crude-oil movement is between 
Mexico and the United States. In 1920 roughly 180 million barrels 
of crude petroleum were moved overseas, of which 106 million barrels, 
or 59 per cent, represented shipments from Mexico to this country. 
The net carrying capacity of tank-steamers plying between Mexican 
and American ports is approximately 6 barrels per deadweight ton. 
The average tanker running between Mexican harbors and New 
England or New York is a 10,000-ton tanker or larger, with a capacity 
of 60,000 barrels or more per trip; the average tank-steamer plying 
to New Orleans has a tonnage of about 8000 tons and a carrying 
capacity of about 45,000 barrels; while smaller tankers of 3000 to 
5000 tons and oil barges make the run between Tampico and Florida 
and Texas ports. 1 The average number of barrels transported per 
tank-steamer trip has increased from about 28,000 in January, 1917, 
to 48,000 in August, 1920, indicating that larger units are being con- 
stantly put into service. 

The distance and average round-trip time for a tanker voyage from 
Tampico to American and other ports are shown in Table 32. 

1 For details regarding the Mexican tanker situation, see V. R. Garfias, 
Principles Governing Mexican Taxation of Petroleum, Publ. No. 1054, American 
Institute of Mining and Metallurgical Engineers, Feb., 1921. 



72 



THE TRANSPORTATION OF CRUDE PETROLEUM 



Table 32. — Distance and Time Required for Round Trip from Tampico to 
Selected Ports by Oil Tanker, Average Speed 10 Miles per Hour, 
with Allowance for Days Lost in Repairs, Dry-docking, etc. 
(Data from V. R. Garfias) 



Port 



Distance, 


Time, Round Trip, 


Miles 


in Days 


3668 


38 


1951 


24 


2030 


25 


475 


12 


2276 


27 


5518 


54 


2874 


32 


1485 


20 


474 


12 


2131 


26 


473 


12 


473 


12 



Antofagasta, Chile 

Baltimore, Md 

Bayonne, N.J 

Beaumont, Tex 

Boston, Mass 

Buenos Aires, Argentina 

Callao, Peru 

Canal Zone 

Freeport, Tex 

Fall River, Mass 

Galveston, Tex 

Houston, Tex 



Before the war, tanker tonnage could be contracted for at 70 
dollars per ton. During the war the price reached 200 dollars a ton 
and higher, but in common with prices in general, the price declined 
to 140 dollars or so by early 1921. 

In a 10,000-ton tanker costing 200 dollars a ton, the cost per 
barrel for transporting oil from Tampico would be as follows: to 
Texas ports, 42.5 cents; to New Orleans, 53 cents; to Florida ports, 
57 cents; and to New York, 88 cents. If the tanker cost only 100 
dollars a ton, the transportation costs would become : to Texas ports, 
31.8 cents per barrel; to New Orleans, 39.6 cents; to Florida ports, 
42.8 cents; and to New York, 65.9 cents. Of the Mexican oil 
shipped to the United States in 1920, about 54 per cent went to New 
York and other North Atlantic ports; 26 per cent to Texas ports; 
and the remaining 20 per cent to New Orleans and Florida ports. 

The approximate tonnage of tank-steamers in operation and under 
construction the first of 1921 by companies exporting Mexican oils 
is shown in Fig. 28. It is to be noted that if the construction program 
as indicated in the chart is completed the available transportation 
will be nearly doubled. Since a Mexican production of 163 million 
barrels in 1920 was handled by existing tonnage, it would appear 
that unless Mexican production doubles in 1921, there will be a 
surplus of tanker transportation facilities. Indeed, tanker con- 
struction throughout the world has been overstimulated, at a period 
of maximum costs, and a surplus of such shipping existed in 1921 as 



TANK-CARS 



73 



compared with the oil immediately to be moved. The oil-trans- 
porting interests, in consequence, found themselves in somewhat 
the same plight that befell the United States Shipping Board in its 
failure to coordinate construction with traffic. 



1568 1136 

Y///A opbhat\hq I-,-;;;,::! BUILDING 

TOTAL= 2704 




STANDARD OIL CO. OF N.J. 



EAGLE OIL & TRANSPORT 



PAN AMERICAN PETR. & TRANS. 



STANDARD OIL CO. OF N.Y. 



SHELL TRANSPORT CO. 



TEXAS CO. 



UNION OIL CO. OF CALIF. 



SINCLAIR CONS. OIL CORP. 



ATLANTIC GULF OIL CO. 



GULF REFINING CO. 



OTHERS 
FIGURES ARE THOUSANDS OF GROSS TONS 



Fig. 28. — Tank steamers in operation and under construction by companies 
exporting Mexican oils, Feb., 1921; data from V. R. Garfias. 

Tank-cars. — Tank-cars are mainly employed for the transpor- 
tation of petroleum products, although a small percentage of the 
crude petroleum supply is handled in this manner. 1 Tank-cars of 
some kind have been in use in the petroleum industry for over fifty 
years. At the outset they were tub-cars, consisting of a wooden 

1 For an account of the development of tank-cars, see Max Epstein, Tank-cars, 
American Petroleum Institute, Nov. 17, 1920. 



74 



THE TRANSPORTATION OF CRUDE PETROLEUM 



vat or set of vats on a flat car. Soon it became necessary to devise 
more efficient units, and the forerunner of the modern tank-car was 
developed, consisting of a steel cylinder strapped to a flat car. There 
were virtually no standards or rules of construction until 1903, when 
the Master Car Builders' Association adopted designs and specifica- 
tions for tank-car construction. The modern tank-car is now " the 
strongest, most durable, most carefully built freight car in the train." 

Originally the tank-car was developed for carrying crude petro- 
leum from the wells to the refinery, the refined products being shipped 
in barrels. The pipe-line, however, has modernly come to care for 
the transportation of a growing proportion of the crude petroleum, 
while the mounting volume of petroleum products to be moved 
has called for increasing numbers of tank-cars for this purpose. Of 
recent years tank-cars have been employed mainly for carrying loads 
from the refinery, and only in minor degree as a feeder to the plant. 
But as the search for new production proceeds and new or tem- 
porary fields are brought in, the tank-car reassumes its original 
function and handles the crude from fields not yet developed to the 
degree where pipe-lines may be profitably constructed. 

The number of oil tank-cars in operation in the United States is 
not definitely known, but the approximate number of tank-cars of 
all kinds in use in this country and Canada is shown in the following 
tabulation. 



Table 33.- 



-Number of Tank-cars in the United States and Canada on 
January 1, 1914-1921* 



1914 


49,901 


1915 


50,899 


1916 


56,752 


1917 


67,817 


1918 


83,918 


1919 


98,657 


1920 


110,534 


1921 


137,493 



* Data from The Lamp, April, 1921, p. 6. 

The majority of the tank-cars in use are owned by oil companies, 
or by separate tank-car corporations, a small proportion only being 
controlled by the railroads themselves. The Interstate Commerce 
Commission has reported that on Jan. 1, 1918, there were 67,000 
privately owned and 11,277 railroad-owned tank-cars in service, 
these figures including cars used for the transportation of other 
liquid products as well as petroleum oils. 1 

1 Case No. 4906, In the Matter of Private Cars, Interstate Commerce Com- 
mission, April 1, 1918. 



CHAPTER VI 



TREND OF REFINERY PRACTICE 



The petroleum industry turns out a wide range of commodities 
under a confusing and perplexing multiplicity of names. The 
products of major importance, however, are four in number, and the 
matter may be simplified by viewing the composite output as shown 
in Table 34. 
Table 34. — Generalized View of the Most Important Petroleum Products 



Major Products 


Principal Varieties 


Gasoline 


Aviation gasoline 
Motor gasoline 
Benzine 
Naphtha 


Kerosene 


Water-white 
Standard-white 
Mineral seal 
Distillate 


Fuel oil 


Gas oil 
Residual fuel oil 


Lubricating oils 


Neutral oils 
Cylinder stocks 
Paraffin oils 


Primary by-products 


Paraffin wax 
Asphalt 
Road oil 
Petroleum coke 


Secondary by-products 
(fabricated) 


Greases 
Petrolatum 
Medicinal oils, 
etc. 



The refining of crude petroleum involves the principle of joint- 
production — the manufacture of a given product necessitating the 

75 



76 TREND OF REFINERY PRACTICE 

output of other products — and this fundamental characteristic of oil 
refining, in view of the varied types of crude petroleum, the circum- 
stances attending their exploitation, and the rapidly shifting char- 
acter of the demands for petroleum products, has led to wide local 
variations in refinery technology in the attempt to fit the supply to 
the requirements of the country. The basic principles underlying 
the refining of petroleum have changed very little since the early 
days of this industry, but the degree to which these principles have 
been applied has shown a constant evolution from partial to full 
application as each field of operations has matured. Thus refineries 
vary from small, rude plants, which merely skim off the lighter com- 
ponents, gasoline and kerosene, selling the residuum as. fuel oil, to 
large, chemically controlled manufactories that turn out the whole 
range of products obtainable in the present state of the art. 

Methods of Refining. — Crude petroleum is manufactured into 
petroleum products by a process of distillation, by means of which 
successive components are vaporized and separately condensed, the 
resultant distillates being then redistilled or chemically purified to 
yield the finished products entering into commerce. Certain of the 
compounds, which decompose at temperatures of vaporization, are 
removed as residual bodies, instead of as distillates. 

There are two fundamental types of distillation in general use: 
(a) dry distillation, in which heat is applied directly to the still by 
coal, gas, or oil fires alone, and (b) steam distillation, in which fire is 
applied to the still but superheated steam is continuously bubbled 
through the boiling oil. 1 

Dry, or destructive, distillation is the simpler and cheaper method, 
and is widely employed in new developments and on cheap oil. Its 
use ordinarily involves some degree of decomposition of the heavier 
components of the oil, and the viscous or lubricating compounds are 
impaired in quantity and quality. Dry distillation is employed 
where the maximum yield of bulk products — gasoline, kerosene, 
fuel oil — is desired. 

Steam distillation is the more involved and expensive method, 
and is employed by most of the older refineries, where the focus is 
upon a full extraction of values and especially upon the manufacture 
of lubricating oils. Its use protects the components of the crude oil 
from undue decomposition during the course of distillation, as the 
steam has the effect of lowering the boiling points of the hydro- 
carbons. 

1 A good technical description of oil refining is given by C. W. Stratford, 
Petroleum Refining, Journal of the Society of Automotive Engineers, July. 1918, 
pp. 69-87. 



SKIMMING PLANTS 



77 



With two basic methods of refining, three groups of crude petro- 
leums (paraffin-base, mixed-base, and asphalt-base), and a varied 
economic setting in respect to the products that may profitably be 
disposed of, a great many different types of refineries have developed. 
It is impossible to make a rigorously logical classification of refinery 
types, but in a general way oil refineries group themselves as follows: 



Table 35. — Important Types oe Refineries 



Name 


Method of 

Distillation 


Kind of Crude 


Economic Focus 


1 . Skimming plant . . . 


Dry 


Mixed and paraffin-base 


Light products (gas- 
oline and kerosene) 


2. Intermediate plant 


Dry 


Mixed-base 


Light products; some 
lubricants 


3. Complete plant.. . . 


Steam 


Paraffin-base 


Lubricants; light 
products 


4. Complete plant.. . . 


Steam 


Mixed-base 


Lubricants; light 
products 


5. Complete plant. . . . 


Steam 


Asphalt-base 


Lubricants; light 
products 


6. Topping plant 


Dry 


Asphalt-base 


Fuel oil 

i 
1 



The characteristic yields of the six major refinery types are shown 
graphically in Fig. 29. The methods of manufacture followed in 
each case are different; and brief descriptions, emphasizing the 
economic characteristics, are given below. 

Skimming Plants. 1 — Skimming plants, as the name implies, 
remove only the lighter fractions from the crude petroleum, and are 
not concerned with the manufacture of products from the heavy 
residues, which are lumped together and sold as fuel oil. (See Fig. 29a.) 
The skimming plant is the simplest and cheapest type of refinery 
and makes merely a rough separation of the raw material into a few 
products in ready demand. Around 40 per cent of the refinery 
capacity of the United States is of the skimming type, the bulk of 
the installations being in the Mid-Continent region in proximity to 
producing fields yielding oils rich in gasoline. 

Skimming plants produce a notable proportion of the country's 
gasoline supply, but are wasteful of the lubricating values contained 
in the oil. They are very profitable where accessible to cheap oil, 
but quickly become uneconomic when adjacent fields decline in 

Refinery types are discussed by H. H. Hill, Refinery Problems, U. S. Bureau 
of Mines, 1920. 



78 



TREND OF REFINERY PRACTICE 




:o:-.'o.' 



°o r '? o n o3£c r ' wjoo c c 






oroco (J oJo 00 ,A 



Gil ol u 



°ocoo' 








o o o o o o 
oogo°° 
Qq: o o o 

OliJ WO o ° 

°>> o)°o ° 
°0%o» 
o o o0 o 
o ° O Q o o 








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° LJ ' ^n ° O 



0° 



^ l-r 



o 0> ooo 

- O °o oo 

O O o o o 






a> 

a 

M 

t|-C 
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&£ 



pq 



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a 
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s 

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2 
ID 

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a; 

bfi 
03 



INTERMEDIATE REFINERIES 



79 



output or when the price ratio becomes unfavorable to this type of 
plant. The skimming plant is an accompaniment of flush produc- 
tion, springing up quickly and as quickly becoming dormant as cir- 
cumstances shift. In many instances, skimming plants are changed 
into intermediate plants (Type 2, Table 35, and Fig. 296) by the 
addition of re-run stills and equipment for the removal of wax and 
the treatment of the heavier distillates, thus evolving into refineries 
capable Of manufacturing lubricating oils. 

Intermediate Refineries. — Refineries employing dry distillation, 
operating mainly on mixed-base crudes, and focusing upon light 
products, with incidental attention to the manufacture of lubricating 
oils, though usually called complete refineries, may be appropriately 
termed intermediate refineries. The yield of a typical plant of this 







11 












~jC 






ytf^\ 


Ji' iiililfc_ 


P* -^J 


fji'lJT^fc^ 






I 1 


\Tff 


~mJ 




IrUf 


Wr ^ 


1 


pi 




Uitl 


■iJ\\ 








mEL^t- 




ilS^ 


"=^ 














i^*-- 













Fig. 30. — Sketch of a typical small skimming plant in the Mid-Continent Field, 
after R. W. Cunningham. 

type operating on Mid-Continent crude is shown in Fig. 296. As the 
term intermediate implies, plants of this type are one stage removed 
from skimming plants, but they do not take full advantage of the 
viscous components of the crude; they extract these but partially 
and in the form of so-called paraffin lubricating oils, with yields 
smaller in volume and inferior in worth to the lubricating oils obtain- 
able from the same crude in complete refineries employing steam dis- 
tillation. 

Complete Refineries. — Complete refineries are those making 
relatively a full extraction of values by the -method of steam distilla- 
tion. The details of a complete refinery differ according to the type 
of crude employed; and in general these differences are such that 
complete refineries may be subdivided into three varieties: (1) those 
handling Pennsylvania, or paraffin-base crudes, (2) those employ- 
ing Mid-Continent, or mixed-base crudes, and (3) those running 
Gulf Coast, or asphalt-base crudes. 



80 



TREND OF REFINERY PRACTICE 







1 

03 



The Pennsylvania 
type of complete re- 
finery is the most 
mature and the best 
known. (See Fig. 29c.) 
Its refinery practice 
is dictated by the 
focus upon obtaining 
the maximum yield of 
lubricating oils, especi- 
ally the viscous variety 
known as cylinder 
stock. Because the 
lighter products of 
paraffin-base crudes 
are readily distilled 
off, while the compo- 
nents of the cylinder 
stock decompose upon 
vaporization, the lat- 
ter is recovered as a 
heavy, residual oil 
which yields finished 
cylinder stock upon 
subsequent treatment. 
The distillation can be 
conducted in this man- 
ner because the crude 
petroleum contains no 
asphaltic material 
which would be left 
behind as a contami- 
nation in the residual 
cylinder stock. The 
characteristic practice 
in s t e a m-r e fi n i n g 
Pennsylvania crude oil 
is shown diagrammati- 
cally in Figs. 31 and 
32. 

With mixed-base 
petroleum, such as 
much of that produced 



COMPLETE REFINERIES 



81 



in the Mid-Continent field, the complete refinery is forced to vary its 
practice in order to remove the asphaltic content at a relatively early 
stage in the distillation process and thus prevent its accumulation 




< « o 



< « o 



along with the residual cylinder stock at the end. (See Fig. 29d.) 
This is accomplished, after the gasoline has been distilled off, by 
treating the oil with sulphuric acid, which precipitates the heavy 
asphaltic bodies in the form of an acid sludge; the remaining oil is 



82 TREND OF REFINERY PRACTICE 

then subjected to further distillation, cylinder stock being left as a 
final residual product. 

With asphaltic crudes, such as those of the Gulf Coast, the com- 
plete refinery may still further vary its practice, and in the direction 
of simplification, since in crudes of this type the entire lubricating 
content may be distilled off (because their boiling points are lower 
than the lubricating components of corresponding viscosity in 
paraffin-base crudes). Thus the asphaltic content offers no par- 
ticular difficulty, since it may be left to constitute the residuum, the 
lubricating oils having passed off as distillates. Refineries of this 
type have enjoyed a notable development in the past few years in 
the Gulf Coast region, and have opened to full utilization a type of 
crude employed mainly heretofore in the manufacture of fuel 
oil. 

Topping Plants. — A variant of the skimming plant, used for 
heavy crudes such as those of California and Mexico which con- 
tain small percentages of light components, is the so-called topping 
plant. This type of refinery is concerned primarily with the pro- 
duction of fuel oil, removing from the crude oil the volatile com- 
ponents which, if left in the fuel oil, would render it unsafe for gen- 
eral use. These light liquids are called tops and distillates and cor- 
respond roughly to the gasoline, naphtha, and kerosene of skimming 
plants. The difference between a topping and skimming plant is 
primarily one of economic focus, arising from the type of crude oil 
available; both are immature, effecting merely a rough separation of 
values. 

Topping plants are numerous in California, and of late a large 
capacity has been installed along the Atlantic Seaboard to handle the 
quantities of Mexican oil coming into this country. The yield of a 
typical topping plant is shown in Fig. 29/. 

Refineries with Cracking Plants. — In many refineries are sup- 
plementary batteries of pressure stills employed in converting gas 
oil partly into gasoline under the application of high temperature 
and pressure. Most of the installations of this kind are attached 
to the larger complete refineries. The raw material and typical yield 
of the process is shown in Fig. 33. Cracking installations have 
developed and expanded in response to a demand for gasoline that 
is outdistancing the ability of normal refining, thus calling into play 
an enforced yield in addition to that ordinarily obtainable. In 1920 
perhaps as much as a tenth of the country's entire supply of gasoline 
was made in pressure stills from gas oil. 

The growth of cracking has created a number of problems of the 
first importance which are treated in detail in subsequent chapters. 



TREND OF REFINERY TYPES 



83 



Trend of Refinery Types. — It is evident from this brief analysis 
of the refinery situation that there are four stages in the evolution of 
refinery practice, through which the refineries of the country are in 
general passing. At the outset of new developments, with cheap 
and abundant crude petroleum, skimming and topping plants 
develop according to the type of crude ; then, with advancing condi- 
tions, these incomplete plants either fail or else change into inter- 
mediate refineries that effect a fuller extraction of values; later, 
with increasing stress, the growth 
is in the direction of complete re- 
fineries, in which fuller advantage 
is taken of the potentialities present 
in the crude oil ; and finally pressure 
stills are installed to carry the 
extraction of values still further by 
converting a low-value product into 
one of greater worth. While this 
evolutionary trend is not entirely 
sharply defined, and local compli- 
cations are present, it is practically 
certain that ultimately the complete 
plant with cracking installations will 
quantitatively dominate the situa- 
tion, just as this type of plant now 
leads in economic and financial 
strength. 

Trend of Refinery Output.— The 

trend in output of the principal 

petroleum products in the United 

States over the period for which _ OQ r „ , , . . . 

..,,-. . riG. 33. — Chart showing typical prac- 



• 






• • • • 






• • • • • 






„ • • • • • 






* • • 






. • . • • • 






■••;.••••: 






. . . . • • 






•:••••.•• 




GASOLj.N.E. 


. • • • • » 
. • . . • 




}.\:£y&&y:;yy : 


•• • • . 






• • • • • • 






« • • 






• • • . 
























• • • . . ; • 






• m • 


1 " • • " . • • 




• • • . * • • 


^ GAS OIL .. 




• • 


[••••:• 




* . * • 

- • • • 




•••••;•■ 




• •* '.• 


.«.••• 




• • • • 


.••/••;; 




• * • • 

. FUEL OIL * 


• • • • • 




• 61 f« . • 


• • • • • • 




• • 

• • • • • 








•/.•. •.-..- 




•••••? 








•••:.•••• 










• « * • • • 


.• • . • V 




..•••;. 


• ••»••• • 




• 


. • . . • • 




• • • • . • . 




. ••. • . • 




LOSS 5% 



tice in manufacturing cracked gaso- 
line. 



figures are available is shown in 
Table 36 and Fig. 34. Fig. 34 is a 
ratio chart in which the slopes of 

the curves are proportional to the percentage changes; it may 
be observed that the production of gasoline and fuel oil has 
been increasing at a notable rate, and one in excess of the 
increase in output of crude petroleum. The production of lubri- 
cating oils and kerosene, on the other hand, has been increasing 
less strikingly and at a much slower rate than crude petroleum. 
With due allowance for imported crudes, there is evidently a shift 
taking place in the proportionating of the output in favor of gasoline 
and fuel oil. This arises of course from the mounting requirements 
of automotive transportation, which have sent the demand for gaso- 



84 



TREND OF REFINERY PRACTICE 



MILLION^ OF 
BARRELS 



ouu 


















500 


















400 
300 

200 
150 

100 
90 




















CRUDE 


PETROL EUM-^X 
































• GAS &. FUEL 


OIL— ^ 










































70 








































/ GA 


30LINE 






/ 


— 








-^— -~"""""~" 


N yf 






/ 




30 

20 

15 

10 

9 
8 


KEROSENE^ 


""""/ 




7 \ 


s' 






















/ 
/ 
/ 






/ L 


UBR. O 


ILS 
• 


/ 
/ 








1 %s 





s 
S 

s 
s 




























s~^ 














— s 


'S' 














7 
6 

.5 
4 

3 
2 

1 


s 
































S 

s 

































































SCALE 
OF INCREASE 
OR DECREASE 

+ 100$ 
+ 80 # 
+ 60$ 
+ 40# 
+ 20# 



Ojg 
10JS 

20 $ 
-30J? 



^_ 



40 # 



- 50# 



1914 1916 



Fig. 34. — Trend in output of crude petroleum and its principal products in the 
United States, 1899-1920. 



PRODUCTION OF PETROLEUM PRODUCTS 



85 



line insistently forward, supported by the vigorous development 
of the oil-fields of this country and Mexico. The production of 
kerosene and lubricating oils has followed along to the capacity 
of their respective demands, much of the potential lubricants hav- 
ing of necessity to be marketed in the form of fuel oil. 

Production of Petroleum Products in Recent Years. — The output 
of the principal petroleum products by years from 1917-1920 is 
shown both statistically and graphically in Fig. 35. It is to be observed 
that enormous volumes of these materials are manufactured and a 
notable advance in output has recently taken place. The change 
in the relative importance of the products is shown in the percentage 
comparison in the right-hand half of the chart. The increase in the 
relative output of gasoline is especially noticeable. 



Table 36. — Production of the Principal Petroleum Products in the 

United States, 1899-1920 





Gasoline Kerosene 

1 


Gas and Fuel Oil 


Lubricating Oils 


Year 


Prod. 

Mill. 
Gals. 


Index 

Nos. 


Yearly 
Change 


Prod. 
Mill. 
Gals. 


Index 
Nos. 


Yearly 
Change 


Prod. 

Mill. 
Gals. 


Index 

Nos. 


Yearly 
Change 


Prod. 

Mill. 
Gals. 


Index 
Nos. 


Yearly 
Change 


1899* 
1904* 
1909* 
1914* 

1916f 
1917f 
1918f 
1919f 
1920t 


281 

291 

540 

1500 

2059 
2851 
3570 
3958 
4883 


18 

19 

36 

100 

137 
190 
238 
264 
325 


+38% 
+25% 

+ 10% 

+23% 


1259 
1357 
1675 
1935 

1455 
1727 
1825 
2342 
2320 


65 

70 

85 

100 

75 

89 

94 

121 

120 


+ 19% 
+ 6% 
+28% 

- 1% 


305 

360 

1702 

3734 

4664 
6513 
7321 
7627 
8861 


8 

10 

46 

100 

125 
174 
196 
204 
238 


+40% 
+ 13% 

+ 4% 
+ 16% 


170 
315 
537 
517 

624 
754 
841 
847 
1048 


33 

61 

103 

100 

121 
146 
162 
164 
203 


+21% 
+ 11% 

+ 1% 
+ 24% 



* Census of Manufactures. 



t U. S. Bureau of Mines. 



Source of Petroleum Products.— The proportions of the principal 
petroleum products manufactured in various parts of the country 
are shown in Table 37, the outputs of each product being grouped 
according to refinery districts. 

The data presented in Table 37 are graphically interpreted in Fig. 
36, in which the relative contribution of each product made by various 
parts of the country may be conveniently viewed. 

Relation of Refining Costs to Crude Costs. — In the refining of 
petroleum, the cost of the crude oil is the largest factor, in many 
instances running up to 70-80 per cent of the total costs. Data for 
1917 for a number of refineries are shown in Table 38 as indicative of 
the situation: 



86 



TREND OF REFINERY PRACTICE 
















\ 


1 




CM 




H 




111 




5 


•VodV-J «= 


:•.•:••.} 


1 



03 
at 

i 

02 
T3 






z 

<00 

2- 

GO 

=> 



Z 
< 

O 




. — . ^ — _ 







r te'&r; 

IS 



t — 




I I 

1 I 






o 








-t-s 


CT> 


C5 


0) 


-a 




o 




1 




1 

16 




CO 


00 

5 






RELATION OF REFINING COSTS TO CRUDE COSTS 87 



Table 37. — Output of the Principal Petroleum Products in the United 
States in 1920 by Refinery Districts 



Refinery District 


Gasoline, 
Per Cent 


Kerosene, 
Per Cent 


Gas and 
Fuel Oil, 
Per Cent 


Lubricating 

Oils, 

Per Cent 


Others, 
Per Cent 


East Coast 

Penn., etc 

Ill.-Ind., etc 

Kan-Okla., etc.. . 

Tex.-La 


19.9 

5.9 

14.4 

20.0 

23.4 

6.2 

10.2 


21.4 

7.5 

9.4 

17.0 

30.8 
5.0 

8.9 


21.9 
2.3 
6.4 

15.1 

27.0 

2.4 
24.9 


31.5 

18.2 
12.1 

8.7 

19.3 
1.4 

8.8 


14.0 
3.4 

13.7 
6.4 

28.0 
15.3 
19.2 


Wyo.-Colo., etc... 
Calif 


Total 


100.0 


100.0 


100.0 


100.0 


100.0 





Table 38. — Relation of Operating Costs to Crude Costs in a Number of 
American Refineries in 1917 

Data from Oil Division, U. S. Fuel Administration. 



Refinery 


Location 


Cost of Crude, 
Per Cent 


Operating Costs, 
Per Cent 


Total, 
Per Cent 


No. 1 


East 


78 


22 


100 


No. 2 


East 


79 


21 


100 


No. 3 


East 


70 


30 


100 


No. 4 


Middle West 


80 


20 


100 


No. 5 


Middle West 


84 


16 


100 


No. 6 


Oklahoma 


87 


13 


100 


No. 7 


Texas 


80 


20 


100 



Table 39. — Relation of Crude Cost to Refining Costs in California in 
1914 and 1919, Based on Data for 15 Refineries 

(In Per Cent) 



Item 


1914 


1919 


General and administrative expense, and depreciation 
Refinery operating expense 


7.1 
13.5 
79.4 


8.3 
17.7 
74.0 


Delivered cost of crude 


Total 


100.0 


100.0 





88 



TREND OF REFINERY PRACTICE 



The relation of the cost of raw material to refining cost is shown 
for California in Table 39 from figures compiled by the Federal 
Trade Commission l for 15 refineries representing a total investment 
of 47 million dollars out of a total for the state of 50 million dollars. 



GASOLINfc 



KEROSENE 




GAS & FUEL 01 L 



LUBRICATING OILS 



ALL OTHERS 



Fig. 36. 



-The output of petroleum products in the United States in 1920 by 
refinery districts. 



Relation of Labor Costs to Refinery Output. — The ratio of man- 
power to the volume of materials handled in oil refining is small, as 
compared with the run of manufacturing operations. An indication 
of this relationship is shown in Table 40. 

1 Summary of Report on the Pacific Coast Petroleum Industry, April 7, 1921, 
p. 13. 



RANK OF PETROLEUM PRODUCTS 89 

Table 40. — Relation of Man-power to Materials Handled in American 
Petroleum Refineries during First Seven Months of 1918 

(Data from U. S. Fuel Administration) 



Number of 
Refineries 


Location 


Average Number of 

Barrels Run Daily 

per Man 


Average Wages per 
Barrel Run, Cents 


6 

33 

7 
6 

5 

38 

2 

12 

109 


East Coast 


9.37 
10.04 

9.80 
74.00 

31.10 
27.00 
42.40 
31.80 

17.57 


46 

37 

44 

5 

13 
15 
14 
14 

24 


Eastern 


Illinois and St. Louis 

Northern Texas 


Gulf 


Oklahoma 

Rocky Mountain 

Pacific Coast 

Country 



Rank of Petroleum Products. — The relative importance to the oil 
refiner of the products manufactured from crude petroleum is indi- 
cated in Table 41, which shows the average returns per barrel of crude 
petroleum refined in 1918. 



Table 41. — Estimated Average Returns per Barrel of Crude Petroleum 

Refined in 1918 

(Data from Bureau of Engineering, Oil Division, U. S. Fuel Administration) 



Rank 


Product 


Dollars 


Per Cent of Total 


1. 

2. 
3. 
4. 
5. 
6. 
7. 


Gasoline 

Gas and fuel oil 


1.922 
1.213 
.419 
.378 
.121 
.042 
.0069 
.210 


44.5 
28.2 

9.7 

8.8 

2.8 

0.95 

0.15 

4.9 


Lubricating oils 

Kerosene 

Wax 


Asphalt 


Coke 

All others 


Total 


4.31 


100.0 





It is apparent from this table that gasoline represented nearly 
half of the income to the average refinery in 1918 — to such an extent 
has the oil industry become involved in the field of automotive trans- 
portation. 



CHAPTER VII 
ANALYSIS OF REFINERY CAPACITY 

There are approximately 500 petroleum refineries in the United 
States ranging in size from plants capable of running 500 barrels of 
petroleum daily or even less to large manufactories equipped for 
handling upwards of 40,000 barrels each day. These plants in the 
aggregate represent a refining capacity in excess of the crude petro- 
leum available as well as in excess of requirements for refined products ; 
a large proportion of the plants are grouped about the oil-fields at a 
distance from the markets; and many turn out a very limited range 
ot products with a sacrifice of values. The oil-refining industry 
as a whole has grown somewhat out of adjustment to supply, demand, 
markets and other factors to which it is geared, and a considerable 
readjustment in the structure of this portion of the petroleum industry 
is taking place and lies ahead. In view of this circumstance, it is 
important to analyze the location, size, type and degree of utilization 
of the country's refinery capacity, with a view to determining the 
stability attained and the extent of the changes in prospect. 

Location of Refinery Capacity. — In spite of the development of an 
extensive pipe-line system for transporting crude petroleum to the 
consuming centers for manufacture there into petroleum products, a 
large share of the refinery capacity of the country is in those states 
producing petroleum in great quantities, such as Texas, California, 
Oklahoma, Pennsylvania, Louisiana, Kansas, and Wyoming. The 
degree to which refining is centered in the oil-producing states is 
graphically shown in Fig. 37, where New Jersey stands out as the 
marked exception to this rule. 

The number, size and location of refineries are given in greater 
detail in Table 42, where figures for a number of years permit a view to 
be had of the location of new developments. It will be observed that 
points along the East Coast, and the states recently coming into 
prominence as oil producers (Texas, Louisiana, and Wyoming), 
show the most marked growth in refinery installations. 

Size of Refineries. — The average capacity of the refineries of the 
country is approximately 4500 barrels a day. The largest refineries, 

90 



LOCATION OF REFINERY CAPACITY 



91 



as readily apparent from Table 42, are in New Jersey, with an average 
capacity of 27,000 barrels daily; the largest of the New Jersey plants 
is at Bayonne, with a daily capacity of 40,000 barrels. To indicate 
in further detail the range of refinery capacities in the various parts 
of the country, recent refinery statistics have been first grouped into 



TEXAS 

CALIF. 

OKLA. 

N.J. 

PENN. 

LA. 

KAN. 

WYO. 

ILL. 

IND. 

MD. 

OHIO 

N. Y. 

MO. 

MASS. 

R.I. 

S.C. 

KY. 

W.VA. 

GA. 

UTAH 

NEB. 

COLO. 

MINN. 

ARK. 

TENN. 



DAILY CAPACITY IN THOUSANDS OF BARRELS 
100 150 200 250 300 350 400 450 




■■■OPERATING 
I I BUILDING 



Fig. 37. — Refinery capacity of the United States in Oct., 1920, by states; data 

from Oil Weekly. 



the six refinery districts established by the U. S. Bureau of Mines 
in reporting refinery output and then classified into five groups 
according to size. The results are shown in Table 43 and graphically 
interpreted in Fig. 38. The dominance of refineries above 10,000 
barrels daily input is at once apparent, while the relatively exten- 
sive installations of refineries running 5000 barrels and under in the 
Kansas-Oklahoma and Texas-Louisiana regions are equally striking. 



92 



ANALYSIS OF REFINERY CAPACITY 



The overwhelming preponderance of refinery capacity in the south- 
cent ml states and near the Atlantic and Pacific seaboards is no less 
notable. Fig. 38 will bear careful comparison with Fig. 2 showing 



Table 42. — Growth of the Refinery Capacity of the United States by 

States, 1918-1921 









(Data from U. S. Hun 


;au of Mines 


) 






States 


Numbkk ok Refineries, 
Jan. 1 


Daily Capacity of Refineries, 

Jan. 1 

(In Thousands of Barrels) 


Average 
Size of 
Refineries 
Jan. 1, 1921 
(In Thou- 
sands of 
Barrels 
per Day) 


i 
1918 


101'.) 


1920 


1 

l 

1921 1 

1 


Build- 
ing 
ran.l, 

1921 


1918 


! 

1919 


1920 


Build- 
1921 j ing 

Jan. 1, 
1921 


Texas. . . . 
California.: 
Oklahoma 
New Jersey 
Louisiana. 

I'enn 

Kansas. . . 
Wyoming. 
Illinois. . . 
Indiana. . . 

Maryland. 
New Yoik 
M'tss 


22 

38 

G4 

5 

10 

50 
27 

4 
10 

1 

4 

7 


26 | 
31 | 
79 
4 
12 

48 
31 

11 
2 

4 

7 


64 
41 

87 

i 

56 
33 
10 

14 
3 

4 

7 


82 
41 
91 
8 
19 

55 
34 
13 

12 
4 

4 
7 
3 
12 
5 

7 
2 
5 
1 
1 

1 
3 

2 
1 
1 

1 


19 

8 
1 
6 

1 

2 


195 
283 

204 
94 
66.9 

85 . 4 

59 . 5 
31.8 
35.9 
30 . 

15.5 

33.5 


212 
281 
233 
100 
67 . 9 

90 . 9 
71.4 
52 . 3 
46 . 
36.5 

15.5 
34 . 5 


317 

310 
249 
111 

72.6 

102 
SO. 2 
61.0 
58 . 
47.2 

15.5 

34 . 5 


366 
313 
277 
217 
120 

118 

84.7 
66.7 | 
54.6 
53.2 1 

42.0 
35 . 
35 . 
34.5 
17.0 

1 5 . 2 
15.0 
7.70 
5 . 00 
4 . 00 

4 00 
1.75 

1 . 50 
1 . 00 

. 50 

. 5( 


41.7 

7.50 
6.00 
5 . 00 

0.20 

1.20 



3 . 00 

. 05 

j 10.00 

! 2 . 00 


4.5 
7.6 
3.5 
27.2 
6.30 

2.1 
2.5 
5.1 
4.6 
13.6 

10.5 
5.0 

11.7 
2.9 
3.4 

2.2 

7.5 

1.5 

5 

4 

4 

0.6 

0.8 

1.0 

0.5 

0.5 


Ohio 

Missouri. . 

Kentucky. 
R I 


10 
5 




10 
5 

2 


10 
4 

6 


1 


24 . 4 
16.2 


24.4 
16.4 

2.60 


24 . 4 

15.8 

I1.-7 


W Va.... 


5 I ■-' 


5 




7.60 


7.70 


7.90 






1 

1 
3 
1 
1 
1 

1 








4 . 00 


Utah 

Colorado.. 
Nebraska 

Minnesota 
Arkansas . 

Tennessee 
S.Carolina 
New Mex. 

Total . . . 


1 
2 


1 

2 


1 


. 80 

1 . 25 


o.so 

1 . 50 


0.80 
1.70 
. 5( 
1 . 5C 
0.6C 

. 5( 


1 

1 


1 
1 






0.30 
0.30 




1 

1 


0.30 
0.50 






















1 




i 


267 289 


373 415 


| 44 


1186 1295 


1 1531 1888 i 76.6 

! ! 


4.5 



the oil-fields of the country. If the industrial and agricultural 
density of the country is held in mind, the analysis of refinery figures 
just given will point to the regions where further refinery develop- 



TYPES OF REFINERIES 



93 



merits are likely to take place. It is quite apparent that refinery 
installation is unduly concentrated in the south-central states and a 
high refinery mortality is in consequence to be looked for in that 
region. 

Types of Refineries. — An economic classification of refineries into 
fundamental types has been given on page 77. Unfortunately 




OVER 10,000 BARRELS 
DAiLY CAPACITY 



5,001-10,000 BARRELS 

2,501 -5,000 BARRELS 
UNDER 2,501 BARRELS 



E.COAST 



PENN. ILL. IND. KAN. TEX. - LA. WYO. C 

ETC. ETC. OKLA. ETC. COLO. 

FIGURES |N RECTANGLES ARE THOUSANDS OF BARRELS DAILY CAPACITY 

Fig. 38. — Refinery capacity in various parts of the country, Oct., 1920, by sizes 
of refineries; data from Oil Weekly. 



statistical data are wanting for measuring the aggregate capacity of 
each type. The Bureau of Mines, however, has published a list of 
refineries 1 in which each refinery is classified according to the range 
of products turned out. This list yields information of value with 
reference to the relative importance of the refinery types, although 
the figures must be used with some discretion, since a single plant 
may include two or more components of different character. For 
example, many of the refineries along the East Coast classified by the 

1 Petroleum Refineries in the United States, January 1, 1921, U. S. Bureau 
of Mines. 



94 



ANALYSIS OF REFINERY CAPACITY 



Bureau of Mines as complete plants are really dual plants, comprising 
a complete refinery and in addition a topping plant. 

Table 43.— Refinery Capacity of the United States in October, 1920, by 
Refinery Districts and Sizes of Refineries * 

(In thousands of barrels per day) 



Refinery District 


Under 

1001 

Barrels 


1001-2500 
Barrels 


2501-5000 
Barrels 


5001- 
10,000 
Barrels 


Over 
10,000 
Barrels 


Total 


East Coast 

Perm, etc 


2.1 

29.3 

.5f 
8.9 
1.5f 
. .36.9 


2.5 

13.5 

12.3 
1.3f 

97.2 
15. 2f 
62 

let 

5.5 

8.6 


20.5 
13.3 

29 

5t 

85.4 
12. 5f 
143 
15f 
7.5 

21.7 
3t 


86.5 
22.9 

26.5 

6t 

79.5 

6.5f 
60.5 
36| 
10 
17f 
40 


266 

15| 

64 

74.5 

267 
108f 

47 

263 


378 
15t 
79 
• 5f 

141 
14f 

373 
43f 

557 

187 f 
74 
19t 

344 
3f 


111., lnd., etc 

Kan.-Okla., etc 


Texas-Louisiana. . . 

Wyo.-Colo., etc 

California 


9.2f 
25.5 
12. 2f 
4.2 
2. If 
10.7 
•3f 


Total 


118 

25. 6f 


202 

32. 5f 


325 

35. 5f 


287 
65. 5f 


1015 
123 f 


1946 

282 f 



* Data from U. S. Bureau of Mines and Oil Weekly, Oct. 15, 1920. 
t Refinery capacity under construction, Oct., 1920. 

The refinery capacity of the country on January 1, 1921, classified 
according to refinery types as determined by the range of products 
turned out, is shown in detail by states in Table 44, while the figures 
for the country as a whole are interpreted graphically in Fig. 39. 
The quantitative importance of the skimming types is especially 
notable and the data shown illustrate the dominance of such plants 
under present conditions. 

Relation of Capacity to Storage. — The supply of petroleum prod- 
ucts is contingent upon refining capacity, while the ease with which 
the continuity of the supply is maintained is in part dependent upon 
the extent of storage facilities. The storage capacity in respect to 
gasoline is particularly important, since the demand for this product 
is strongly seasonal in character, being roughly twice as great in 
summer as in winter, and the dependence of the supply upon the 
activity of the skimming plant is especially marked. In periods 
such as the winter of 1920-21 when numbers of smaller plants shut 



RELATION OF CAPACITY TO STORAGE 



95 



COMPLETE PLANTS 



down, the question arises as to the probable effect upon the quantity 
of gasoline accumulating in storage to meet the peak demand of the 
coming summer. 

Considerable light is 
thrown upon this point 
by Fig. 40, which shows 
for various parts of the 
country the approxi- 
mate gasoline storage 
present in the large, 
medium-sized, and small 
refineries. This chart 
is based upon the gaso- 
line actually in storage 
on March 31, 1920 1 
(the month when gaso- 
line stocks are usually 
at their highest level); 
and is therefore a fairly 



\OOfc 



QOfo 



80fo 



TOf 



eofo 



50fc 



good index of the dis- 



40$ 



20^ 



}Ofc 




W 



Ml 






SKIMMING & LUBR. PLANTS 



WAX PLANTS 



SKIMMING & ASPHALT PLANTS 



tribution of storage 
capacity subsequently, 
since further develop- 
ment of storage will not 
substantially affect the 
relations shown. It is 
at once apparent that 
the gasoline storage 
capacity of small re- 
fineries is practically in- 
significant as measured 
against that of large 
refineries. 

Comparison of Fig. 
40 with Fig. 38, more- 
over, indicates that 
storage capacity for 
gasoline is roughly 
proportional to refin- 
ing capacity, with the 

notable exception of the Illinois-Indiana district, where the gaso- 
line storage vastly exceeds the normal ratio; and of California, 
1 From data supplied by H. F. Mason of the U. S. Bureau of Mines. 



oooooooooooo 
O O O O aq.O o o o o c 
o o o o o<=>-5> o o o o o 

O O OOOOOOOOOO 



SKIMMING PLANTS 




TOPPING PLANTS 



ALL OTHERS 



FIGURES IN RECTANGLES REPRESENT 

DAILY REFINERY CAPACITY IN UNITS 

OF lOOO BARRELS 

Fig. 39. — Refinery capacity of the United States on 
Jan. 1, 1921, classified by types of refineries; data 
from U. S. Bureau of Mines. 



96 



ANALYSIS OF REFINERY CAPACITY 



Table 44. 



■Refinery Capacity of the United States on 

Compiled from data collected 

(In thousands of 





Topping 
Plant 


Skimming 
Plant 


Skimming 

AND 

Asphalt 


Skimming 
and 
Coke 


Asphalt 
Plant 


Skim., Lub. 

and 

Asphalt 


State 


Tops, 

Distillates, 

Gas and 

Fuel Oils 


Gasoline 

Kerosene, 

Gas and 

Fuel Oils 


Gasoline, 
Kerosene, 

Gas and 
Fuel Oils, 

Asphalt 


Gasoline, 
Kerosene, 
Gas and 
Fuel Oils, 
Coke 


Distillates, 
Gas and 

Fuel Oils, 
Asphalt 


Gasoline, 

Kerosene, 

Gas and 

Fuel Oils, 

Lubricating 

Oils, 

Asphalt 


Texas 


4.75 


161.85 






15 




California 


59.3 


56.95 


20.6 




0.85 


23.15 


Oklahoma.. . . 




176.8 











New Jersey . . 






5.5 








Louisiana .... 


3 


36.25 


37 








Pennsylvania. 




1.305 






5 


10 


Kansas 




56.15 










Wyoming. . . . 


1 


20.9 




9.8 






Illinois 




24 










Indiana 




3.2 










Maryland 










3 




New York . . . 














Massachusetts 


10 




25 








Ohio 




4.6 










Missouri 


5 












Kentucky .... 




8.2 




5 






Rhode Island. 




10 






5 




West Virginia. 




0.5 










Virginia 










5 




Georgia 














Utah 














Colorado .... 




0.05 










Nebraska. . . . 




1 










Minnesota. . . 














Arkansas .... 














Tennessee 




0.5 










S. Carolina.. . 














New Mexico.. 
Total 














83.05 


562 . 205 


88.1 


14.8 


33.85 


33.15 


Percentage.. . 


4.4 


29.8 


4.7 


0.8 


1.8 


1.8 



TYPES OF REFINERIES 



97 



Jan. 1, 1921, by States, Classified by Types of Refineries 
by the U. S. Bureau of Mines) 
barrels per day) 



Skim., Lub. 

AND 

Coke 



Gasoline, 

Kerosene, 

Gas and 

Fuel Oils, 

Lubricating 

Oils, 

Coke 



Skimming 

and 
lubkicating 



Gasoline, 
Kerosene, 
Gas and 
Fuel Oils, 
Lubricating 
Oils 



Lubricat- 
ing 
Plant 



Gas and 
Fuel Oils, 
Lubricat- 
ing 
Oils 



Wax 

Plant 



Gasoline, 

Kerosene, 

Gas and 

Fuel Oils, 

Lubricating 

Oils, 

Paraffin 

Wax 



Complete 
Plant 



Gasoline, 
Kerosene, 
Gas and 
Fuel Oils, 
Lubricating 
Oils, Paraf- 
fin Wax, 
Coke, or 
Asphalt, 
or Both 



Unclas- 
sified 



Total, 

Jan. 1, 

1921 



Building, 

Jan. 1, 

1921 



12 



39.5 

52.6 
44.9 



11.250 
3 



1.1 
1 

0.8 



4.3 



0.1 

2 
1 
4 

0.2 

1 

0.5 



5.4 

4.2 

52.0 



29.745 
9.5 
35 



1 

2.9 

6.2 



130 
95.5 

210.0 

40 

59.5 
4 

23.3 
50 

38 
34 

26.9 
12 



1.5 



365 . 75 

313.35 

276.8 

216.5 

119.5 

117.6 
84.65 
66.7 
54.6 
53.2 

42 

35 

35 

34.5 

17 

15.2 
15 

7.7 

5 

4 

4 

1.75 

1.5 

1 

0.5 

0.5 



41.65 

7.5 

6 

5 



05 



10 

2 



12 
0.6 



167.35 
8.9 



149 . 945 
7.9 



724.7 
38.4 



1888.3 
100 



76.6 



98 



ANALYSIS OF REFINERY CAPACITY 




OVER 10,000 BARRELS 
DAILY CAPACITY 
^5,001-10,000 BARRELS 
*-2,501 - 5,000 
E.COAST PENN. ILL.-IND. KAN. TEX. - LA. WYO. CALIF '^UNDER 2,501 

ETC. ETC. OKLA. ETC. COLO. 

FIGURES IN RECTANGLES ARE MILLIONS OF GALLONS 

Fig. 40. — Relative storage capacity for gasoline in various parts of the country, 
classified by sizes of refineries; based upon quantity of gasoline in storage on 
March 31, 1920. 




E.COAST 



APPALACHIAN 
N. CENTRAL 



MID.CONTINENT 



TEX. LA. 



ROCKY MTN. 



KEROSENE FUEL OIL 



LUBR.OILS REF.CAPACITY 



Fig. 41. — Relative storage capacity for the principal petroleum products in vari- 
ous parts of the country, compared with crude-still capacity; based upon 
figures for Oct., 1920. 



GROWTH OF REFINING CAPACITY 



99 



where the gasoline storage falls short of the normal ratio. In 
the first instance, the departure from normal points to the marked 
degree to which Mid-Continent gasoline is stored in the north- 
•central district; while in the second instance, the relatively low 
ratio of gasoline storage to refinery intake is due to the low gasoline 
content of California crudes, to the fact that the storage was not full 
at the time noted, and to the less accentuated seasonal variation of 
demand in that state. 

The relative storage capacity in the various parts of the country 
for the main petroleum products other than gasoline may be inferred 
from the quantities of such products in storage on October 31, 1920, 
when stocks were large. A general view of such storage capacity, 
compared with refining capacity, is presented in Fig. 41, which 
shows with a fair measure of accuracy the conformity and discrep- 
ancy between the two. 

Growth of Refining Capacity. — The growth of refining capacity 
over a number of years is shown in Table 45, in which the capacity 
for January, 1918, is called 100 and the subsequent dates are expressed 
in percentages of that number. (See also Table. 42.) 



Table 52. — Growth of Refinery Capacity in the United States, in 
Percentages of the Capacity in January, 1918 





January, 1918 


January, 1919 


January, 1920 


January, 1921 


Texas 


100 
100 
100 

100 
100 
100 

100 


109 

99 

114 

106 
107 
116 

109 


162 
109 
122 

118 
120 
136 

129 


188 
111 
141 

230 
138 
183 

159 


California 


Oklahoma 


New Jersey 


Pennsylvania 


Others 


Whole country 



The table shows the notable degree to which refine^ installations 
developed in 1919 and 1920, particularly in Texas and New Jersey. 
The refinery capacity of the entire country increased 18 per cent 
during 1919, and 23 per cent in 1920, with an additional capacity 
under construction at the beginning of 1921 amounting to 4 per 
cent of the total. It would seem that refinery capacity, in common 
with many lines of activity, overexpanded in the boom period follow- 
ing the armistice, and hence faced the 1920-1921 period of business 
liquidation in an inflated condition. The effect of the rapid exploita- 



100 



ANALYSIS OF REFINERY CAPACITY 



tion of the Texas oil-fields is reflected in refinery installations in that 
state, while the growing quantity of Mexican oils imported into the 
United States is partly responsible for the increased capacity in 
New Jersey. 

Refining Capacity Utilized. — For a number of years only about 
three-quarters of the installed refining capacity of the country has 
been actually utilized, which reflects in further degree the over- 



THOUSANDS 

OF BARRELS 

DAILY CAPACITY 




200 



Fig. 42. — Used and unused refinery capacity of the United States by months, 
1918-1921; data from U. S. Bureau of Mines. 



expanded condition in which the oil-refining industry found itself 
when the period of rapid expansion was terminated by the business 
depression in 1920. The unused, or idle, refinery capacity in the 
United States by months, 1918-1921, is shown graphically in Fig. 42, 
prepared from data published by the U. S. Bureau of Mines as given 
in Table 46. 

The unused refinery capacity in various parts of the country in 
October, 1920, when refining operations were unusually vigorous, is 



REFINING CAPACITY UTILIZED 



101 



Table 46. — Operating and Idle Refinery Capacity of the United States 
by Months, 1918-1921 

(Data from U. S. Bureau of Mines *) 



Date 


Refineries Operated 


Total Number of 
Refineries 


Idle 
Equipment 


No. 

of 

Plants 


Daily 

Capacity 

of Plants 

Operated 

(In 

Thousands 

of Barrels) 


Daily 

Crude 

Run of 

Plants 

(In 

Thousands 

of Barrels) 


No. 

of 

Plants 


Total Daily 

Capacity 

of All 

Plants 

(In 

Thousands 

of Barrels) 


No. of 

Idle 
Plants 


Total Idle 

Capacity 

of All 

Plants 

(In 

Thousands 

of Barrels) 


1918. January.. 
February 
March. . . 


245 


1158 


769 
835 
846 




1190 




421 


April .... 

May 

June 






873 
920 
938 




i2i8 






July 

August. . . 
September 






941 
920 
946 










October. . 
November 
December 


'267 


i226' 


943 
914 

870 


'289 


'i295' 


22' 


425' ' 


1919. January.. 
February. 
March. . . 


'277 


1243' 


870 
901 
899 










April. . . . 

May 

June 






926 
976 
964 










July 

August. . . 
September 


'287 


'i277' 


1007 
1044 
1087 










October. . 
November 
December 


290 
'292 


1338 
'i356' 


1087 
1074 
1046 


373 


153i' 


hi' 


"485' 


1920. January. . 
February. 
March. . . 


265 


'i560' 


994 
1007 
1084 


373 


1531 




537 


April .... 

May 

June 


'307 


' ieoi ' 


1095 
1115 
1164 




"i593* 




"429 


July 

August. . . 
September 


311 
322 

324 


1637 
1671 
1675 


1194 
1283 
1352 










October . . 
November 
December 


332 
326 

328 


1687 
1698 
1714 


1312 
1315 
1306 










1921. January. . 
February. 
March . . . 


311 
291 
290 


1721 
1692 
1697 


1279 
1235 
1145 


415 


1889 


104 


610 


Aoril .... 

May 

June. . . . 


299 
302 
310 


1747 
1739 
1760 


1253 
1193 
1231 


:::: 









Compiled in part by M. C. Ehlen. 



102 



ANALYSIS OF REFINERY CAPACITY 



given in Fig. 43, where the unused capacity may be seen to have 
been much greater in the southwest than in the eastern and the 
northcentral state's. 

The unproductive capital tied up in the idle equipment is worthy 
of emphasis, as well as the poor prospects for financial success enjoyed 
by new and improperly located ventures in the face of the conditions 
depicted. The high production costs of products flowing through 
plants running short of full capacity are not sufficiently recognized, 
owing to cost accounts that fail to measure this factor; but, as pointed 
out by Gantt, Polakov, and other industrial engineers, this matter 
is a potent cause of financial loss and even failure, and should receive 
the closest attention and study. 





) 10 




~] OPERATING 
20 30 


40 




50 


|;:f:;:f:f:;:i| IDLE 


80 


90 




( 


60 70 


10 






EAST COAST 








83 








* 


17 






1 




PENN. etc. 


80 




20 


r 




1 




ILL.-IND. etc. 








87 










fecWS: 






1 


KAN.-OKLA. 








56 




1 






•44 


i- 




! 


TEX. -LA. 








62 






1 • ■ • 




>::;38:;: 


; ;-: 




1 


WYO.-COLO. 








63 






f 




37 


-- 




1 


CALIF. 








64 






1 




:^36 : :: 






1 


COUNTRY 






' 


68 




Xx j. 




32. . 






t 



Fig. 43. — Proportion of installed refinery capacity in use in Oct., 1920, in various 
parts of the country; data from U. S. Bureau of Mines and Oil Weekly. 

Conclusions. — The foregoing analysis of refinery capacity affords 
quantitative evidence for a number of deductions that are fairly 
well known qualitatively; namely, that refinery capacity is con- 
siderably greater than the needs of the country; that much of this 
capacity is poorly located for survival; that a notable percentage 
of the capacity is of the skimming or incomplete-run type and hence 
poorly adapted for profitable operation with high cost crudes; that 
the installation of refinery capacity enjoyed an accelerating growth 
well into the period of industrial depression ; and that the oil-refining 
industry as a whole is handicapped by idle capital investment to the 
extent of unused refinery capacity. 

Projected into the future, these conditions spell considerable 
readjustment in the refinery situation; first, as a result of the period 
of business liquidation of 1920-1921 ; and, second, as a result of the 
stringency in domestic crude supply that is due to follow. 



CONCLUSIONS 103 

On the whole, it is apparent that the refinery situation reflects 
in no uncertain terms the peculiar economic conditions surrounding 
the production of crude petroleum; small, incomplete refineries 
spring up in proximity to flush production only to die again as the 
wave of oil-field development passes on. The growth of refinery 
capacity has apparently been influenced more by supply than 
demand; the future, it would seem, will dictate a closer-knit coordi- 
nation with all the economic factors involved through a process of 
elimination that will affect developments projected without due 
regard to these considerations, 



CHAPTER VIII 



THE OUTLOOK FOR OIL REFINING 



CENTS PER 
GALLON 



100 
90 
80 
70 
60 
50 

40 



30 



20 



SCALE OF 
INCREASE 

OR 

DECREASE 

+10(Ko 



Conditions are grad- 
ually developing in the 
oil situation under which 
those refineries running 
domestic crudes, which 
are not prepared to 
operate as plants turn- 
ing out lubricating oils, 
will have to go out of 
business as unprofitable 
enterprises. This deduc- 
tion is based upon the 
trend of prices and values 
as revealed during the 
eight-year period, 1913- 

1920, the continuation 
of which, following the 
industrial depression of 

1921, is predicated upon 
the growing inability of 
the domestic output of 
crude petroleum to meet 
the country's require- 
ments. 

Trend of Prices, 1913- 

1920. 1 — The course of 

market conditions for 

crude petroleum and its 

principal products for 

1913-1920 is shown 

graphically in Fig. 44, in 

Fig. 44.-Trend of the average prices of crude which the slopes of the 

petroleum and its principal products in the five curves indicate the 

United States by years, 1913-1920. direction and intensity 

1 A fuller discussion of prices is given in Chapters 17 and 18, which should 

be consulted in the present connection. 

104 





















































































/ 






L 


UBRIC/ 
OIL 


VTING 




/ 
/ 

1 










/ 
/ 

/'* 

/ 


\SOLtt 

\ 


E / 




^T " 





// 






/ 






































|j<ERO 


SEiME 






















CRl 


IDE P 


ETROL 


EUM 




























JUEL 


OIL 

































1 

1913 1914 1915 1916 1917 1918 1919 1920 



TWO TYPES -OF PRICES 



105 



PER CENT AVERAGE PRICES FOR 1913 

500 



of the economic forces at work. The outstanding feature of the 
chart is the marked advance over the past few years in the price 
of lubricating oils contrasted with the relatively moderate rate of 
increase in the price of gasoline. The advances in the prices of 
crude petroleum, fuel oil, and kerosene are intermediate in degree 
between lubricating oils, 
on the one hand, and 
gasoline, on the other, 
though tending to ap- 
proach the former. The 
differential changes in 
prices of the four major 
joint-products of crude 
petroleum are of great 
importance, for they in- 
dicate corresponding 
changes in the conditions 
under which oil-refining 
may be profitably con- 
ducted. 

The trends shown in 
Fig. 44 will not maintain 
themselves through the 
price depression of 1921, 
but revealing the habit 
of oil prices on a rising 
market they may be ex- 
pected to reassert them- 
selves when oil prices 
next begin to advance 
under pressure from the 
crude petroleum situa- 

' Fig. 45. — Trend of the price levels of crude 

TWO Types Of Prices. petroleum and its principal products in the 
—The prices of lubricat- United States by years, 1913-1920, in percent- 
ing oils and fuel oil are ages of the average prices in 1913. 
determined in a highly 

competitive market by the normal operation of supply and demand, 
whereas the prices of gasoline and kerosene are to a dominant 
degree decided by the tank-wagon price set for these products 
by large marketing companies. This fundamental distinction be- 
tween the two groups of prices should be held clearly in mind as 
it is an important key to the course of prices in the future. In short, 




1914 



1916 1917 1918 1919 



106 



THE OUTLOOK FOR OIL REFINING 



the one set of prices is quite sensitive to the vagaries of the 
market, while the other set of prices is open to additional influences 

with a stabilizing re- 
sult. 

Fig. 45 illustrates 
the extent to which the 
prices of crude petro- 
leum and its principal 
products increased be- 
tween the pre-war year 
of 1913 and 1920. 
It will be observed 
from this chart that 
the prices of lubricat- 
ing oils and fuel oil, 
together with crude 
petroleum, rose to 
higher levels than 
the prices of kerosene 
and gasoline, the last 
named having ad- 
vanced the least of all. 
This relationship is 
significant and sug- 
gestive of the funda- 
mental difference ex- 
isting between the 
two sets of prices. 
For purposes of 
comparison, the price 
level of commodities 
in general is also 
entered upon Fig. 45, 
and it may be ob- 
served that this in- 
dex line, if super- 
imposed upon the 
price curves, will di- 
vide them into the two fundamental groups already noted. 

The Stress Product. — Although gasoline has advanced in price 
in less degree than the other petroleum products, it may be math- 
ematically demonstrated (see Fig. 46) that a greater discrepancy 
between supply and demand has developed in respect to gasoline 




1913 1914 1915 1916 1917 1918 1919 1920 



Fig. 46. — Trend of the output of crude petroleum and 
its principal products in the United States, 1914- 
1920, compared with the trend of gasoline produc- 
tion. 



THE PROFIT PRODUCT 



107 



MILLIONS 

OF 
DOLLARS 
5O00t 



4000 



2000 



lOOO 
900 
800 
700 
600 



500 



200 



lOO 
90 
80 
70 
60 
50. 



SCALE 

OF 

INCREASE 

OR 
DECREASE 
+ 100$ 
* 80 
+ 60 
+ 40 
+ 20 



- 10 

- 20 

- 30 

- 40 

- 50# 



than in regard to the other petroleum products. Fig. 46 shows the 
trend in output of the four major petroleum products, together with 
the trend in production and consumption of crude petroleum. The 
straight line indicating the average trend of gasoline production is 
fitted to the curves showing the trend of production of fuel oil, kero- 
sene, lubricating oils, and crude petroleum. The angle between the 
average trend line of gasoline production and the trend lines of these 
other products indicates that the demand for gasoline is the major 
economic force sending 
the oil industry for- 
ward. It is observable 
that the gasoline de- 
mand is notably strong- 
er than the supply of 
crude petroleum, even if 
imports of crude petro- 
leum are added to the 
domestic production, 
and in consequence a 
marked lagging in the 
output of fuel oil and 
kerosene is taking place 
in order to compensate 
for the discrepancy. It 
is a striking fact that 
the petroleum product 
which has been enjoying 
the strongest demand 
is the one which un- 
derwent the slightest 
price advance. 

The Profit Product. 
— The growth in value 
of the total quantity of 

crude petroleum and its principal products produced in this country 
over the past few years is shown in Fig. 47. The close coincidence of 
gasoline and crude petroleum should especially be noted. The inter- 
pretation of this chart becomes clearer if the following relationships, 
which are not commercially correct, but in an economic sense are 
true, are accepted as valid, namely: that gasoline receipts pay for the 
raw material; kerosene receipts pay for refining; and fuel oil receipts 
pay for marketing, leaving the receipts from lubricating oils as profit. 
Referring to Fig. 47 in detail, it will be observed that the cost of 

























































/ 














f 












^ 


7 










y 


^ 












// 














V-^ 


RUDE 
rROLEU 


VI 




GA 


SOLINE 








.• / 
/ / 














/// 




^ 




FUEL 


OIL .-' 

/ /' 


LUBS./ 

/ 

/4KEF 


OSENE 








.^y 










mi : 


'■' 












_„*'" 























































1913 1914 1915 1916 1917 1918 1919 1920 

Fig. 47. — Trend of the value of the domestic output 
of crude petroleum and its principal products 
by years, 1914-1920. 



108 THE OUTLOOK FOR OIL REFINING 

domestic crude in 1920 exceeded the value of gasoline produced, a 
circumstance throwing a greater burden upon the other products. 
A close coincidence in values is to be observed for fuel oil, kerosene, 
and lubricating oils. 

In view of this chart, and in the light of events in the refining 
industry, the conclusion is offered that skimming plants are profitable 
only in periods of flush production and many of these enterprises 
have already found it unprofitable to continue in business. Refineries 
of intermediate character are next in line to feel a continuation of the 
type of stress already affecting skimming plants. Only lubricating 
plants, therefore, will remain as the logical survivors of a continua- 
tion of the present competition, which, it should be observed, is 
operating not only between industrial units, but between the economic 
forces at play in the fashion pointed out above. Many refineries not 
making lubricating oils, therefore, under the conditions lying ahead 
may be expected to show no profits and in consequence to fail. 

Why Gasoline Prices will Continue to Lag. — A change in the 
course of gasoline prices in the direction of accelerated rise in level, 
would obviate the consequence otherwise in store for the economically 
inefficient refinery. Gasoline prices, however, may not be logically 
expected to show a departure from their past performance. This 
product has come into such universal use and touches the public at so 
many points that it has essentially become a public utility in an 
economic sense. The surmise is made that this fact is not only 
recognized but has been acted upon by the marketing companies 
setting the price pace for gasoline; and the price has been tempered 
accordingly. But this deduction does not rest alone upon surmise. 
Figs. 44-46 are presented in support of this theory. In no other way 
could a stress product show the mildest advance in price amongst its 
fellows. 

Why Non-lubricating Refineries will Fail. — Fig. 48 shows the 
increase in value of the main petroleum products over recent years 
compared with the cost of the domestic crude petroleum entering 
into their fabrication. Imported crude petroleum and minor petro- 
leum products do not appear on the chart because of the lack of sta- 
tistical data, but these groups approximately balance, and the chart 
presents the true situation as it stands. The price of domestic crude 
petroleum in the long run will continue to advance (irrespective of 
minor fluctuations immediately ahead) and the price of gasoline will 
also continue to lag in its advances behind the prices of its joint- 
products. The condition developing in 1920 and shown in Fig. 48, 
where gasoline and most of the kerosene are necessary to support 
the cost of crude, leaves little margin of profit for plants not making 



WHY NON-LUBRICATING REFINERIES WILL FAIL 109 



lubricating oils. This differential is decreasing under the influences 
of the forces gathering impetus in the situation, and within a very 
few years the failure of refineries which are running domestic crude, 



MILLIONS 

OF 
DOLLARS 

2800 



2600 



2000 
1800 
1600 
1400 
1200 
lOOO 
800 
600 
400 
200 



"re*" 



.COST OF DOMESTIC CRUDE 



VERTICAL BARS REPRESENT VALUE OF U.S. PRODUCTION 




— * 



LUBRICANTS 



KEROSENE 



GASOLINE 



1914 



1916 



1917 



1918 



1919 



1920 



Fig. 48. — Comparison of the relative importance of the principal petroleum 
products as sources of revenue to the oil industry, 1914-1920, contrasted with 
the cost of crude petroleum. 

but are inadequately equipped for extracting the full range of values 
from their raw material, may be expected to be widespread. 



CHAPTER IX 
GASOLINE 

Gasoline cannot be commercially manufactured as a single 
product, since its production involves the output of at least two other 
products, kerosene and fuel oil. Gasoline, in consequence, is a joint- 
product of crude petroleum, and its whole economic status is colored 
by this circumstance. 

Before the advent of the automobile, the production of kerosene 
in growing quantity necessitated the output of more gasoline than 
could be absorbed by the small market for this product; gasoline 
was then troublesome to dispose of and state inspection laws were 
passed to prevent the adulteration of kerosene with gasoline. With 
the rise of automotive transportation, however, the demand for 
gasoline soon exceeded that for kerosene, thus reversing the relation- 
ship of the two products. Now the production of kerosene is inci- 
dental to the manufacture of gasoline, and there is a growing tendency 
for the light components of kerosene to be included in the gasoline 
turned out, so insistent is the demand for the latter; although state 
inspectors are still maintained at public expense to keep the gasoline 
out of kerosene. 

The commercial supply of gasoline is composed of natural, or 
straight-run, gasoline; a volatile gasoline won from natural gas; 
synthetic gasoline made by " cracking " heavier petroleum distillates; 
and naphthas which alone would rank as light kerosene. 

Natural Gasoline. — Natural gasoline, also known as straight-run 
gasoline, is made up of the components of crude petroleum that distil 
off at relatively low temperatures. A few years ago, natural gasoline 
was the only type of gasoline on the market and for that reason is still 
commonly believed to be the best type obtainable. Many automo- 
bile users have been educated to demand straight-run gasoline, and 
feel that the more common blended varieties are inferior substitutes. 
As a matter of fact, however, the greater part of the gasoline mar- 
keted to-day is some sort of blend and " many of the blended products 
are preferable to straight-run products, particularly if the added con- 
stituent is so-called ' casing-head ' gasoline derived from natural gas." 1 

1 Hill and Dean, Quality of Gasoline Marketed in the United States, Bull. 191, 
U. S. Bureau of Mines, 1920, p. 5. 

110 



NATURAL-GAS GASOLINE 111 

Natural-gas Gasoline. — Between 1910 and 1920 a rapidly increas- 
ing and significant yield of gasoline has been attained through the 
recovery of a highly volatile gasoline from natural gas, which has 
been blended with straight-run gasoline or with distillates too heavy 
to rank alone as gasoline. The raw product is commonly called casing- 
head gasoline x and it enlarges the gasoline supply to a greater extent 
than its actual volume, since its employment renders available for 
motor use considerable quantities of distillates that in their original 
state lacked a large enough proportion of low-boiling constituents 
to make satisfactory motor-fuels. 

Because of the cheapness with which casing-head gasoline could 
be won as a by-product from natural gas, and the scope for expansion 
offered by the field, the growth of the casing-head gasoline industry 
has been rapid. In 1920 casing-head gasoline was responsible for 
around a tenth of the country's total gasoline output. The growth 
of this contribution, however, has begun to slacken, and a general 
survey of the natural gas situation would seem to indicate that 
contributions from this source have already reached approximately 
50 per cent of their ultimate capacity. Developments pointing 
to the same conclusion are to be found in the fact that the casing- 
head gasoline industry grew up on the basis of the compression 
process which extracts gasoline from " wet " gas heavily laden with 
gasoline vapor, whereas attention is now turning in growing degree 
to the leaner so-called dry gas which requires a more intimate absorp- 
tion process to yield results. 

Cracked Gasoline. — A growing quantity of gasoline is manufac- 
tured from heavy petroleum fractions by processes of cracking dis- 
tillation, whereby the heavy hydrocarbons are decomposed or 
" cracked " into lighter, more volatile components approximating 
straight-run gasoline in performance. Cracked gasoline is not used 
as such, but is blended with straight-run gasoline and casing-head 
gasoline to make a commercial product. Most of the cracked gaso- 
line is made by the Burton process, developed and controlled by the 
Standard Oil Company of Indiana, but leased by this organization 
to certain other companies. The total quantity of cracked gasoline 
now produced is not definitely known, but in 1918 the output was 
approximately 360 million gallons, or about one-tenth of the country's 
total production of gasoline, a ratio which probably obtained with 
little change in 1920. 

1 In 1921, manufacturers of gasoline from natural gas formed an "Association 
of Natural Gasoline Manufacturers" and adopted the trade name "natural 
gasoline" to supersede "casing-head gasoline" for gasoline made from natural 
gas. As used in this book, however, natural gasoline designates gasoline won 
from petroleum by straight refining. 



112 



GASOLINE 



Changing End-point of Gasoline. — Gasoline is not a single chem- 
ical product possessing definite properties, but is a series of related 
compounds running from hydrocarbons with small, light molecules 
to hydrocarbons of larger and heavier molecular character. Gasoline, 
therefore, is a chain of compounds ranging from light, highly volatile 
components through graded intermediates to relatively heavy, less 
volatile end-products. The character of the compounds at the light 
and heavy ends of the series is fixed at any given moment by the dic- 
tates of commercial practice and economic requirements, but in 
a manner that may be correlated with the conditions of supply and 
demand governing the production of gasoline. 



475 
450 
425 


ANALYSES BY 
0=U.S. BUREAU OF MINES 




X 


«»jr\ 




A= AUTOMOTIVE FUEL CLUB, DETROIT 
X= MISCELLANEOUS 


***** 




xP> 


c 








"** / 






375 




A- Aw 










A^ 


<f 












325 


+ ' 


X 












300 




A 














1915 


1916 


1917 


1918 


1919 


1920 


1921 



Fig. 49. — Hypothetical curve showing the trend and seasonal fluctuation of the 
average end-point of motor gasoline in the United States, 1915-1921, based 
mainly on surveys made by the U. S. Bureau of Mines. 

The character of a given type of gasoline is determined chemically 
by subjecting a sample to a standard method of distillation and noting 
the boiling point of the first tenth, the second tenth, and each sub- 
sequent tenth of the sample as it distils off, with special reference to 
the initial point and the end, or dry, point of the process. The series 
of temperatures so determined is then plotted on cross-section paper 
as a curve which gives a picture of the volatility range of the sample. 
This distillation curve expresses the character of the gasoline in terms 
of its suitability as motor-fuel, since the initial point indicates the 
readily vaporized components that determine the ease with which 
the engine may be started, while the end-point measures the extent 
to which heavy components are present that tend to pass through 
the engine incompletely burned. The U. S. Bureau of Mines makes 
periodic surveys of the gasoline supply, subjecting to distillation 



CHANGING END-POINT OF GASOLINE 



113 



scores of samples collected in all parts of the country; the results 
yield average curves for the various sections of the country and for 
the country as a whole which permit the trend of the supply to be 
definitely determined. 

For a number of years, and particularly since 1915, the end-point 
of gasoline has been tending upward, that is, the volatility of gasoline 
has been decreasing. An indication of the extent to which this has 
been taking place is given in Table 47, in which the results of distilla- 
tion tests in successive years are brought together. 

Table 47.— The Rising End-point of Gasoline, 1910-1921 



Year 



1910. January *. . . 

1915. Second half f 

1916. April t 

July* 

September J . 

1917. April, May §. 

July* 

1919. Aprils 

April, May § 

1920. January f . . . 
July? 

1921. January II. . . 



No. of 

SamDles 



Locality of 
Samples 



Typical 



24 



85 



81 
82 

115 



Detroit 
Detroit 
Detroit 

Whole country 
Detroit 

Leading cities 
Whole country 

Leading cities 
Leading cities 

Leading cities 



End-point 



278 F.° 

360° F. 

300° F. 
325° F. 
390° F. 

394° F. 
400° F. 

417° F. 
423° F. 

427° p. 
456° F. 

429° F. 



* F. H. Floyd, Commercial Gasoline and the Impurities That Are Being Encountered, 
Soc. Aut. Eng., Jan., 1911. 

f Rittman, Jacobs, and Dean, Physical and Chemical Properties of Gasolines Sold through- 
out the United States during the Calendar Year, 1915, Tech. Paper, 163, U. S. Bureau 
Mines, 1916. 

% Automotive Fuel Club, Detroit, Mich. 

§ Hill and Dean, Quality of Gasoline Marketed in the United States, Bull. 191, U. S. 
Bureau of Mines, 1920. 

% N. A. C. Smith, Motor Gasoline Survey, U S. Bureau of Mines, Reports of Investigations, 
July, 1920. 

[| N. A. C. Smith, Third Semi-annual Motor Gasoline Survey, U. S. Bureau of Mines, 
Reports of Investigations, February, 1921. 

The end-point figures given in Table 47, some of which are aver- 
ages for the entire country, form a basis for interpreting the change 
in volatility of the country's gasoline supply over a period of recent 
years. The data are accordingly interpreted in Fig. 49, which shows 



114 



GASOLINE 



that the end-point has been consistently rising between the years 
1915 and 1921, but with a marked seasonal fluctuation. The sea- 
sonal fluctuation shown is based partly on distillation data and partly 
on observation and inference as to the seasonal relation between 
gasoline and kerosene, the peak of the gasoline demand coming in 
late summer and tending to draw the light kerosene ends into the 
gasoline supply, with the peak of kerosene requirements falling in 
the winter off-season for gasoline and reversing the tendency. The 
seasonal variation is likewise suited to the operating conditions of the 
engine, since the heavy ends are more readily converted into power 
under summer conditions than in the winter. 



GALLONS 

600 



500 

















\ , 






















\\ 








GASOL^ 


IE / 




/ ^^_, 














































/ 








/ \ 


.EROSEN 






/ 


















""^ y 















400 

300 
250 

200 
150 

100 

1917 1918 1919 1920 1921 

Fig. 50. — Trend of the output of gasoline and kerosene in the United States by 
months, 1917-1920, showing the diverging secular and complementary 
seasonal relationship between the gasoline and kerosene supply. When the 
two curves are converging, the end-point of gasoline is declining, and when 
the two curves are diverging the end-point of gasoline is rising. 

The complementary tendency in the relationship between gasoline 
and kerosene is shown in Fig. 50, in which the productions of gasoline 
and kerosene by months for the period 1917-1920 are plotted on a 
semi-logarithmic scale and straight trend lines fitted to the two curves 
as a whole and to the component parts of the two curves. It is 
apparent, in the first place, bearing in mind that the two products 
are made dominantly from the same raw material, that the output 
of gasoline has been increasing much more rapidly than the output of 
kerosene, suggesting the tendency for the light kerosene ends to be 
progressively included in the gasoline supply. In the second place, 
it may be observed that the respective curves for gasoline and kero- 
sene tend roughly to diverge in the spring and to converge in the fall, 
pointing to a seasonal swing on the part of the light kerosene ends 



CHANGING END-POINT OF GASOLINE 



115 



DEGREES 
CENTIGRADE 
230 



190 



from kerosene to gasoline, and back again as the season progresses. 
This seasonal relationship is not sharply defined throughout the years 
charted, but such departures from this tendency as appear arise from 
the influence of the conditions of supply and demand, an oversupply 
of gasoline or an undersupply of kerosene tending to reverse the 
normal seasonal proclivity. Thus in 1919 the relative abundance 
of the gasoline supply coupled with the reopening of the far-eastern 
markets for kerosene injected counter forces that modified the 
seasonal reflex. On 
the whole, however, 
the various factors can 
be closely enough 
measured to permit 
the character of the 
gasoline supply to be 
projected ahead and 
the end-point to be 
anticipated, yielding 
results of practical 
value to the oil pro- 
ducer and oil marketer, 
as well as to the in- 
terests concerned in 
the design and modi- 
fication of the auto- 
motive power plant. 

Thus far in this 
section emphasis has 
been laid upon the be- 
havior of the end- 
point, since this char- 
acteristic is the key to 
the character of the 

gasoline supply. In specific problems, however, the whole dis- 
tillation curve is important, although the various components of 
the supply display a tendency to behave in conformance with the 
change in end-point, as indicated in Fig. 51, which shows the distilla- 
tion curves for the average gasoline in use over a number of years. 

The cause of the rising end-point of gasoline does not seem to be 
comprehended in all quarters. While doubtless the result of attempts 
to adulterate the gasoline supply in some specific instances, the 
change in general is undoubtedly an economic response to a demand 
that is outdistancing supply and forcing modifications in the char- 



-U 


|/^_1 9^0 JULY 


ZEZt 




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50 



FIRST 10 20 30 40 50 60 70 80 90 DRY 
DROP POINT 

PER CENT DISTILLED 

Fig. 51. — Trend of the change in volatility of gasoline, 
1915-1920, showing the rise in end-point; after 
R. E. Fielder, Society of Automotive Engineers; 
data from U. S. Bureau of Mines. 



116 



GASOLINE 



BILLIONS 

OF 
GALLONS 



3= 



NCREMENT DUE TO 
RISE IN ENDPOINT 



INCREMENT DUE TO 
CASINGHEAD GASOLINE 



INCREMENT DUE TO 
CRACKING 



GASOLINE PRODUCTION 

ON BASIS OF 1914 

PRACTICE 



1914 



1916 1917 1918 1919 1920 



Fig. 52. — The economic components of the gasoline production of the United 

States. 1914-1920. 



acter of the supply. With the end-point of 1914, for example, the 

gasoline supply of 1920 
would have fallen some 10 
per cent short of meeting 
the requirements of the 
market. 

The end-point of gaso- 
line has a fundamental bear- 
ing upon automotive trans- 
portation, which is treated 
in further detail in Chap- 
ter 22. 

Components of the Gaso- 

Fig. 53. — Trend of the gasoline supply of the PP J* & 

States, 1914-1920, showing relative impor- supply, as already noted, 
tance of the several components. is composed dominantly of 

natural, or straight-run, 

gasoline, supplemented in recent years by a growing volume of 




1919 1920 



SOURCES OF SUPPLY 



117 



TOTAL OILS RUN TO STILLS = 19. 5 BILLION GALLONS 





cracked gasoline, casing-head gasoline, and heavy ends, the last 
mentioned being reflected in a rising end-point. The three sup- 
plementary types of gasoline develop in a measure together since no 
one is marketed alone but goes into use in blended form. Casing- 
head gasoline and heavy ends are particularly complementary. 

The relative contributions made by the various components of 
the gasoline supply cannot be determined with close accuracy, 
because of the absence 
of exact statistics; but 
an interpretation based 
upon available figures 
and estimates, checked 
by economic reasoning, 
is given in Fig. 52, which 
indicates the growing 
degree to which the 
gasoline supply is be- 
coming dependent upon 
the supplementary con- 
tributors. The same 
data, converted into per- 
centages, are presented 
in Fig. 53, as emphasiz- 
ing the trend of the situ- 
ation. 

Sources of Supply. — 
The production of gaso- 
line is fairly well dis- 
tributed in reference to 
the location of demand, 
although a considerable 

volume is transported Fig. 54.— The production of gasoline in the United 
from the SOUth-central States in 1920, by refinery districts, 

states to the more 

populous areas to the north and northeast. The quantity 
produced in the various refinery districts of the country in 1918, 
1919, and 1920, together with the percentage yields in respect to the 
total oils run to stills, is shown in Table 48, the figures for 1920 being 
interpreted graphically in Fig. 54. 

Current Trend of Supply and Demand.— The trend of the major 
factors entering into the interplay between supply and demand is 
shown by months for the period 1917-1921 in Fig. 55. The data are 
plotted on a semi-logarithmic, or ratio, scale in which the slopes of 



,o 



EAST COAST 



ILL.-IND., etc. 



KAN.- OK LA., etc. 



TEX.- LA., etc. 



WYO.-COLO., etc. 



CALIF. 



i i \ \ i i i r 

O 10 20 30 40 50 60 70 80 90 1OOf 

FIGURES IN RECTANGLES ARE MILLIONS OF GALLONS 



118 



GASOLINE 



the lines are proportional to the percentage changes ; thus the various 
factors charted are directly comparable and the effect of a change in 
any one item upon the other items may be observed and analyzed. 
The chart is presented not only as an interpretation of current 
developments, but as a suggested means for keeping track of condi- 
tions ahead, since the data are readily obtainable from month to 
month for posting on an original chart similarly designed. 



Table 48.- 



-Production of Gasoline in the United States by Refinery 
Districts, 1918-1920 





1918 


1919 


1920 


Produc- 


Per Cent 


Produc- 


Per Cent 


Produc- 


Per Cent 


Refinery District 


tion in 


of Total 


tion in 


of Total 


tion in 


of Total 




Millions 


Oils 


Millions 


Oils 


Millions 


Oils 




of 


Run to 


of 


Run to 


to 


Run to 




Gallons 


Stills 


Gallons 


Stills 


Gallons 


Stills 


East Coast 


719 
242 


24.0 

27.8 


780 
270 


22.8 
28.4 


971 

288 


25.2 
29.3 


Pennsylvania 


Illinois, Indiana .... 


461 


36.5 


571 


34.6 


703 


35.4 


Kansas, Oklahoma. . 


865 


29.4 


881 


30.8 


979 


32.2 


Texas, Louisiana 


637 


17.4 


800 


20.1 


1144 


21.7 


Wyoming 


212 


30.5 


238 


28.4 


301 


30.1 


California 

Total 


434 


12.9 


418 


12.3 


490 


14.4 


3570 


22.6 


3958 


23.0 


4882 


25.0 



The outstanding features of Fig. 55 are: The upward trend of 
production; the marked complementary relationship between 
domestic consumption and stocks, reflecting the highly seasonal 
character of the gasoline demand; the failure of the successive peaks 
of the stocks curve to show an upward trend paralleling that of 
production; and the strongly fluctuating character of the exports 
curve. 

A statistical summary of the gasoline situation, upon which Fig. 55 
is partly based, is given in Table 49. 

Relation of Production to Stocks. — The size and trend of pro- 
duction by months, compared with the stocks of gasoline on hand, 
in the various refinery districts in the United States for 1919 and 1920, 
are shown graphically in Fig. 56 based on data given in Table 50. 
The chart brings together in one comparable view the refinery 
statistics for gasoline in a form suitable for drawing deduction as to 



RELATION OF PRODUCTION TO STOCKS 



119 



the variations in supply and demand in various parts of the country. 
As with Fig. 55, the type of chart is presented as a practical method 
of interpreting a extensive range of statistics difficult to analyze in 
tabular form. 

































































AV. 


EXP 


DRT 


PR 


3E 
















J 


VER 


AGE 


DO 


rfES 


TIC 


1 
PRICE 




,', 






«*. 


*C> 








- v 




















_N, 










w 


^^ 




















































































MILLIONS 

OF 
GALLONS 










































900 
800 
700 
600 




















































































































,' 
































,- s 






/ 
















,- 


- 








' 


\ 




/ 
/ 


\ 














400 
300 

200 










/ 


\ 


STOCKS 


/ 




V 


, 


' 




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\i 














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i 




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s 

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TIC 


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100 

90 
80 








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19 


7 






19 


18 






19 


19 






192 


!0 






19: 


>1 





CENTS PER 

GALLON 
40 



SCALE OF 

NCREASE 

OR 

DECREASE 



1+100^ 



•40 
■20 


j— 10 

j-20 
J— 30 
I- 40 

J- 50 £ 



Fig. 55. — Trend of the gasoline situation in the United States 
by months, 1917-1921. 



A notable feature of the chart is the seasonal demand reflected 
by the valleys in the curves for stocks, stressing the importance of 
the seasonal factor in the marketing of gasoline. 

Demand for Gasoline. — The demand for gasoline during the past 
decade has not only grown tremendously, but its character has also 
changed notably, in response to the requirements of automotive 



120 GASOLINE 

Table 49. — Summary of the Gasoline Situation 



Period 



Produc- 
tion, 
Millions 

of 
Gallons 



Stocks,* 
Millions 

of 
Gallons 



Exports, 
Millions 

of 
Gallons 



Domestic 
Consump- 
tion, 
Millions 

of 
Gallons 



Average 
Domestic 
Price 
(Tank- 
wagon), 
Cents 
per Gallon 



Average 
Export 
Price, 
Cents 

per 
Gallon 



By years, 



1914 
1915 
1916 
1917 

1918 
1919 
1920 



1500 

2059 
2851 

3570 
3958 

4883 



412 

297 
447 
462 



210 

282 
356 
416 

559 
372 
635 



3129 
3436 
4256 



13.0 
11.7 

18.9 
20.6 

21.7 

22.2 
26.5 



12.0 
12.0 
19.3 
22.4 

25.0 
24.7 

27.2 



By months: 

1919. January. 
February 
March. . 



April . 
May. 
June. 



July. . 

August 
September 

October. . 
November 
December 



304 

284 
311 

320 
354 
338 

342 
327 
340 

363 
339 
336 



383 

458 
546 

594 
594 
594 

515 
435 
371 

354 

378 
447 



48 
27 
22 

28 
26 
32 

25 
30 
37 

41 
31 
29 



170 

182 
201 

245 
327 
306 

397 

378 
367 

340 

284 
238 



22.5 

22.2 
22.2 

22.2 
22.2 
22.3 

22.2 
22.2 
22.2 

22.2 
22.2 
22.2 



23.8 
23.6 
24.9 

25.3 
27.0 
24.1 

24.1 

24.8 
25.4 

23.9 
26.0 

24.7 



By months: 

1920. January. 
February 
March. . 



April 
May. 
June. 



July . . 

August 
September 

October. . 
November 
December 



337 
323 
367 

356 
381 
415 

423 
444 
454 

466 
453 
464 



516 
563 
626 

644 

578 
504 

413 
323 

288 

301 
355 

462 



31 
32 
47 

44 
69 
69 

82 
59 
40 

65 

40 
65 



237 
244 
257 

295 

378 
420 

432 
475 
449 

388 
359 
292 



23.1 

23.8 
25.1 

25.9 
26.3 
26.8 

26.8 

27.5 
28.2 

28.2 
28.1 
28.0 



23.8 
24.5 
24.6 

28.6 
26.7 
27.0 



27 

27 
29 

28 
29 



28.6 



By months : 

1921. January.. 
February . 
March . . . 

April 

May 

June 



460 


572 


55 


295 


27.6 


388 


681 


54 


225 


25.0 


420 


713 


47 


341 


24.0 


426 


747 


57 


335 


23.5 


449 


800 


41 


355 


22.0 


430 


751 


39 


440 


21.4 



30.8 
30.7 
27.4 

26.6 
25.2 
24.0 



* End of period. 



DEMAND FOR GASOLINE 



121 



transportation. At the present time the volume of gasoline consumed 
by passenger automobiles, trucks, and tractors, and going into the 
export trade, constitutes over 90 per cent of the supply, the uses 



PRODUCTION 



25 | 
01 



ioo 

50 
O 

IOO 
50 






50r 

25 

oi 



2 ol 



\^ 



I 



1919 



^ 



t 



1920 



EAST COAST 



ILL.-IND. etc. 



KAN.- OKLA. etc. 



WYO.-COLO. etc. 




1919 



1920 



Fig. 56. — Production and stocks of gasoline in the various refinery districts of the 
United States by months, 1919-1920. 



once dominant for cleaning, solvent purposes, and in chemical man- 
ufacture, having been relegated to an entirely subordinate position. 
Measurement of the components of the gasoline demand may be 
made by multiplying the average number of cars, trucks, and tractors 
in use each year by factors representing their respective average 



122 



GASOLINE 



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DEMAND FOR GASOLINE 



123 



annual consumption of gasoline; and subtracting the total, together 
with the quantity exported, from the figures representing the coun- 
try's total production which leaves a small quantity covering miscel- 
laneous uses. The results obtained are approximations merely, 
because the basic data are imperfect, but the broad features of the 
demand may be drawn with sufficient closeness to indicate its trend 
and composition. 

Fig. 57 analyzes the trend of the gasoline demand for the period 
1910-1920 and is based on registration figures for cars and trucks, 
the best available data for tractors, and the following consumption 
factors (see Table 51) modified somewhat for 1920. 



Table 51. — Annual Consumption Factors for Cars, Trucks and Tractors 





Passenger 
Cars 


Light 
Trucks 


Heavy 
Trucks 


Average 
Trucks 


Tractors 


Av. annual consumption 


300 gals. 


1000 gals. 


2000 gals. 


1500 gals. 


2000 gals. 



These factors are based upon an investigation conducted by the 
War Industries Board in 1918, 1 modified by additional calculations 
and experience. The factors cannot be accepted as exact, and indeed 
they change from year to year. Most factors generally used repre- 
sent a combined figure for cars and trucks. In both 1919 and 1920 
the consumption factor for cars and trucks combined was 400 gallons 
(domestic consumption minus 20 per cent for tractors and miscella- 
neous uses, divided by average number of automotive units in use). 
On this basis for 1920, assuming 7,450,000 cars and 800,000 trucks 
as the average number in use during the year, the average consump- 
tion would be, in gallons per year: 



Passenger Cars 


Trucks 


Combination 


335 gals. 

282 gals. 


1000 gals. 
1500 gals. 


400 gals. 
400 gals. 



Without going into further detail, it may be stated that the true 
consumption factors of cars and trucks lie somewhere between the 
limits of 335 and 282 for cars, and 1000 and 1500 for trucks. Since, 
however, there is a tendency (since 1918) for the annual mileage of 
passenger cars to become greater, while the number of light trucks 

1 M. J. Gillen, Regulation of Uses of Motor Cars, Gasoline, Rubber Tires, 
and Rubber, War Industries Board, Nov. 4, 1918 (manuscript). 



124 



GASOLINE 



is increasing relative to heavy trucks, the factors of 335 gallons per 
year for cars and 1000 gallons for trucks are advanced as satisfactory 
for application to the years immediately ahead. In Figs. 57, 58, and 



MILLIONS 

OF 
GALLONS 



9,000 
8,000 
7,000 
6.0OO 
5,000 

4.000 
3„000 

2 000 






































































































































































<S1& ^** 




/ 




















v>i>-^ 


# 


/ 














^ 






4 












900 












$/ 


°/ 


















s 


? jy 




















o^X ' 


&y 






















&Y / 




y 


v/ 




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/ 








M)S 


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\n 


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90 






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ty 














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t/ 










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V 










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& 


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5Q 




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30 

20 

15 

ro 


/ 




CO 


NSUME£. 
















/ 



































































SCALE 

OF 

INCREASE 

OR 
DECREASE 
+ 100$ 
80 
60 
40 
20 

O 
lO 
20 
30 
40 



191:1 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 

Fig. 57. — Trend of supply and demand for gasoline in the United States, 

1910-1920. 

59 these factors are employed for 1920, while the factors given in 
Table 51 are used in calculating the preceding years, thus allowing 
for the shifting currents in the situation. 



DISTRIBUTION OF THE GASOLINE DEMAND 



125 



Fig. 58 gives the data of Fig. 57 plotted so as to show the growing 
importance of trucks and tractors as consumers of motor-fuel. The 
demand chart may be seen to be made up of two fairly constant 
components, exports and miscellaneous, and three widening wedges, 
cars, trucks, and tractors. The wedges representing truck and tractor 
consumption, it should be observed, are in a relatively youthful stage 
as compared with the wedge representing the consumption of pas- 




1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 



Fig. 58. — Analysis of the growth in the demand for gasoline in the United States, 

1910-1920. 



senger cars. The same range of data, recalculated to a percentage 
basis, is presented in Fig. 59 as a matter of further comparison. 

Distribution of the Gasoline Demand. — The geographical distri- 
bution of the requirements for gasoline may be calculated with 
approximate accuracy from automotive registrations, and the results 
may be used effectively by marketing companies as a guide to sales 
development. Since the number of cars and trucks in each town and 
county in the country is known, the calculation of the demand is 
easily made by means of the consumption factors just given, modified 
to meet local conditions. 



126 



(JASOLINE 



Consumption factors for fourteen states of various types and 
diverse locations arc 4 given in Table 52, which at the same time illus- 
trates the method of calculation. 

Table 52. — The Consumption of Gasoline in 1920 in Selected States, 
Together with the Average Annual Consumption per Car 



States 


( rasoline 
Consumed,* 

Millions 
of Gallons 


Average number ( Jars 
and Trucks in Use 

During 1920,t 

Thousands of Cars 

and Trucks 


Average consump- 
tion per Unit (Cars 
and Trucks), t 
Gallons 


Alabama 


48.0 
23.9 
51.4 
53.7 
117 

156 
82.4 
74.0 

273 
63.0 

47.6 
41.2 
41.0 

57.8 


66.8 
54.3 

117 
64.7 

247 

54.3 
208 
125 
563 
175 

93.6 

81.5 
113 
91.2 


575 
352 
352 

665 
379 

230 
317 
473 

388 
288 

407 
404 
290 
507 

402 


Arkansas 


Colorado 


Florida 


Kansas 


Mississippi 


Nebraska 


North Carolina ...... 

Ohio 


Oklahoma 


Oregon 


South Carolina 

South Dakota 

Tennessee 

Average 



* Data from American Petroleum Institute. 

f Data from Automotive Industries; calculated by averaging registrations of first and last 
of year. 

X Calculated by discounting the annual consumption by 20 per cent to allow for tractor 
and miscellaneous consumption, and dividing the resultant by the average number of auto- 
motive units in use. 



Wide variations in the consumption factors given are imme- 
diately noticeable, and there are certain discrepancies difficult of 
explanation. For general purposes, the broad averages are more 
useful than the detailed figures; and the latter should be used 
with due regard to the generalized data upon which they are 
based. 

Seasonal Variation in Demand. — The increased consumption of 
gasoline in the summer months, because of the greater use of auto- 
mobiles, creates a peak-load problem for the producer and marketer 
of gasoline. The gasoline requirements of the country are twice 



SEASONAL VARIATION IN DEMAND 



127 



as great in summer as in winter, reaching their maximum in August 
and their minimum in January. The summer consumption is greater 
than the production, and the requirements are met by heavy drafts 
upon the gasoline stocks that accumulate during the winter and 
spring months. The relation between the seasonal variation in 
demand and the course of stocks is marked, as shown in Fig. 60, 
which is based on statistical data recalculated to a common base in 
January. The curve 
showing normal con- 
sumption is a smoothed 
average and represents 
the course that demand 
may be expected to 
follow in any given 
year. The correspond- 
ing index numbers, to- 
gether with the percent- 
age of the year's total 
that each successive 
month may be expected 
to require, are presented 
in Table 53. 

As the demand for 
gasoline increases and FlG - ^.-Percentage analysis of the demand for 
7i i r v gasoline, 1910-1920. 

the volume of gasoline 

required to meet the 

summer demand grows larger, the handling of the peak-load 
becomes more and more difficult. Any stringency, or shortage, 
in gasoline that may come is bound to develop in the summer 
season. A gasoline shortage in August, therefore, does not mean 
an inadequate production of gasoline so much as an unequalized 
load coming to a focus in that month. 

During the period 1918-1920 the stocks of gasoline, while trending 
upward in an absolute sense, have not been keeping pace with the 
rise in production or demand. Fig. 61 shows the downward plunge 
taken by the stock curve in 1920 and reflects the growing difficulty 
ahead in meeting the climax in demand. A converging trend 
between stocks and consumption, as shown in Fig. 61, cannot con- 
tinue without ultimately leading to a failure of supply at the peak 
season. 




1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 



128 



GASOLINE 




SCALE OF 

INCREASE 

OR DECREASE 

PTI+IOOJJ 

^+ 80$S 
4- 60J6 
+ 40$S 

+ 20<S 



o$S 
lO* 

- 20J6 
-30* 

4- 405S 
50<£ 



Fig. 60. — The seasonal variation in the demand for gasoline compared with 
seasonal changes in the volume of gasoline in storage. 



Table 53. — The Seasonal Demand for Gasoline in the United States 



*r ,1 Index 
Months ,. T , 

Numbers 


Percentage of 
Year's Total 


January 

February 

March 


100 
108 
120 

135 
160 
185 

210 
220 
195 

165 
147 
125 


5.4 

5.8 
6.4 

7.2 
8.5 
9.9 

11.2 
11.8 
10.4 

8.8 
7.9 
6.7 


April 


May 


June 


July 


August . 


September 


October 


November 


December 




100.0 

1 



SEASONAL VARIATION IN DEMAND 



129 



The significance of the declining ratio of stocks to requirements 
is further shown in the following tabulation : 



Table 54. — The Significance of the Stocks of Gasoline in the United 
States in September, 1917-1920 





Sept., 
1917 


Sept., 
1918 


Sept., 
1919 


Sept., 
1920 


Ratio of stocks to domestic consumption . . . 
No. of days' supply represented by stocks. . 


116% 
35 


85% 
26 


100% 
30 


65% 
19| 

i 



The peak-load problem, long recognized and aggressively handled 
in the electrical industry, is growing in seriousness in connection 



MILLIONS 
OF GALLONS 




Fig. 61. — The converging trend of gasoline stocks and gasoline consumption, 
pointing to the growing difficulty of supplying the peak requirements of 
summer. 

with the supply of gasoline. Gasoline storage is not developing as 
rapidly as the peak of demand is rising, and unless this relationship 
is reversed the supply will thin out to a stringency in an early summer 
ahead, even granted an adequacy of crude to maintain production. 
Should a shortage of crude at the same time supervene this stringency 
will break into a shortage, calling widespread attention to the situa- 
tion. 



CHAPTER X 
KEROSENE 

Kerosene, that fraction of crude petroleum intermediate in 
character between gasoline and distillate fuel oil (gas oil), affords an 
interesting example of a product whose economic status has been 
profoundly affected by modern technical changes in fields impinging 
upon its own. Once the mainstay of the oil-refining industry, kero- 
sene has been relegated to a relatively subordinate position, and 
the output of this product in the United States has recently reached 
its maturity. 

When the petroleum industry developed in the United States 
following the discovery well on the Drake farm in Pennsylvania in 
1859, a product distilled from coal and known as " coal oil " was in 
widespread use as an illuminant. It was soon found that crude 
petroleum, by a process of distillation and chemical treatment, 
could be made to yield an illuminating oil suitable for use in lamps. 
For many years, the efforts of the oil-refining industry were mainly 
devoted to the development of kerosene and the extension of markets 
for this product with sufficient speed to give vent to the mounting 
volume of crude petroleum. Domestic markets alone proved inad- 
equate, so the foreign field was vigorously attacked and American 
kerosene was sent to the four corners of the globe, to lengthen the 
days of the peoples of the entire world. " It would be difficult 
indeed to estimate the value to the world at large of this cheap and 
convenient source of light, which has been aptly termed ' one of the 
greatest of all modern agents of civilization.' " 

The supply of raw material for the manufacture of kerosene con- 
tinued to grow and toward the close of the Nineteenth Century the 
commercial development of gas and electricity began to narrow the 
domestic market, throwing still greater emphasis upon the impor- 
tance of expanding the foreign outlet. In the meantime the volatile 
components of the crude petroleum had to be separated from kero- 
sene and thus a supply of gasoline was being developed, without a 
corresponding demand, and gasoline for a time became a drug on the 
market. Into this setting came the commercial development of the 
internal combustion engine and the phenomenal rise of automotive 
transportation, with results familiar to everyone. Kerosene was 

130 



THE WANING STATUS OF KEROSENE 



131 



soon forced to the background, and gasoline has supplanted kero- 
sene as the leading representative of the joint-products of petroleum. 
The Waning Status of Kerosene. — In 1899 the output of kerosene 
was 58 per cent of the crude petroleum run to stills; while in 1914 
this proportion had dropped to 24 per cent; and in 1920 to 12.7 per 
cent. The declining ratio of kerosene output to crude run is shown 
for the years for which figures are available in the following table : 

Table 55. — Percentage of Kerosene Produced from the Crude Petroleum 
Run to Stills in the United States, 1899-1920 
Data from U. S. Census and U. S. Bureau of Mines 



Year 


Crude Run to Stills, 
Billions of Gallons 


Kerosene Produced, 
Millions of Gallons 


Kerosene Produced, 

Percentage of Crude 

Run 


1899 
1904 
1909 
1914 

1916 
1917 
1918 
1919 
1920 


2.18 
2.81 
5.07 
8.04 

10.4 
13.2 
13.7 
15.2 
18.2 


1259 
1357 
1675 
1935 

1455 
1727 

1825 
2342 
2320 


58 

48 
33 
24 

14.0 
13.1 
13.3 
15.4 
12.7 



CENT 

100- 



PRODUCTION 



60- 



40 



20- 



OTHER 
PETROLEUM 
- PRODUCTS ~ 



/•-e-KEROSENE 



VALUE OF 
PRODUCTION 



eot 



1899 1914 1920 



I4<$ 



1899 1914 1920 



Fig. 62. — The relative importance of kerosene compared with other petroleum 
products in the United States in 1899, 1914, and 1920. 

The value of the kerosene produced in the United States, in pei 
centages of the value of the total products of the still, was 60 per cent 
in 1899, 24 per cent in 1914, and approximately 14 per cent in 1920. 
The trend of the relative decline in output and in value of kerosene 
is shown graphically in Fig. 62. 



132 



KEROSENE 



Sources of Supply. — The quantity of kerosene produced in the 
various refinery districts of the United States in 1918, 1919, and 1920, 
together with the percentage yields of the total oils run to stills, is 
shown in Table 56. (See also Fig. 63.) 

Table 56. — Production of Kerosene in the United States by Refinery 

Districts, 1918-1920 



Refinery District 


1918 


1919 


1920 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oils 

Run to 

Stills 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oils 

Run to 

Stills 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oils 
Run to 

Stills 


East Coast 

Pennsylvania, etc . . . 
Illinois, Indiana, etc. 
Kans., Okla., etc.. . . 
Texas, Louisiana . . . 
Wyoming, Colorado . 
California 


486 
137 
187 
415 
435 
62.7 
103 


16.2 
15.7 
14.8 
14.1 
11.9 
9.0 
3.1 


703 
191 
217 
393 
569 
65.7 
204 


20.6 
20.0 
13.1 
13.7 
14.3 
7.8 
6.0 


497 
173 
217 
394 
714 
117 
207 


12.9 
17.6 
10.9 
13.0 
13.7 
11.7 
6.0 


Total 


1825 


11*6 


2342 


13.6 


2320 


11.9 



It will be observed that there is a marked variation from year to 
year in the percentage yields of kerosene. This flexibility reflects 
the readiness with which the limits of kerosene are shifted under 
varying economic conditions, the light ends of kerosene going into 
gasoline or not as occasion demands, and the heavy ends being like- 
wise interchangeable with gas oil. In general, the year 1919 shows 
much higher kerosene yields than do 1918 and 1920, a circumstance 
to be correlated with the fairly abundant supply of gasoline relative 
to demand in 1919 and the contrary tightness of supply in 1918 
and 1920. 

Fig. 63 emphasizes the importance of the contribution to the 
country's supply of kerosene made by the south-central states. 

Relation to Gasoline. — The tendency over the past few years for 
the light ends of kerosene to be incorporated into the gasoline supply 
has been fully discussed in Chapter 9. In addition to this progressive 
transfer from year to year, as the demand for gasoline mounts, there 
is a seasonal relationship within the year, the kerosene output rela- 
tive to the quantity of oils run to stills being in general less in summer 
than in winter. The calculations supporting this conclusion are 
presented in Table 57. 



RELATION TO GASOLINE 



133 



The degree of cor- 
relation between season 
and percentage yield 
of kerosene may be 
effectively shown by 
recalculating Table 57, 
taking the yields for 
the third quarter of 
the year as a base of 
100. The results of 
such a calculation are 
presented in Table 58. 

It is apparent that 
the kerosene yields 
bear a very consistent 
and definite relation 
to the season, the 
only exception being 
offered by the Wyo- 
ming-Colorado refinery 
district. The relation- 
ship is definitely trace- 
able to the demand 
for gasoline, which as 
shown in Chapter IX, 
falls upon the four 



KEROSENE 



HOTHER PRODUCTS 
AND LOSSES 



TOTAL OILS RUN TO STILLS =19.5 BILLION GALS. 



EAST COAST 



KAN. OKLA„ ETC. 




COLO.. ETC. 



tth i i i i i r 

lO 20 30 40 50 60 70 SO 90 10104 
FIGURES IN RECTANGLES ARE 
MILLIONS OF GALLONS 

Fig. 63. — The production of kerosene compared 
with the production of other petroleum products 
in various parts of the United States in 1920. 



Table 57. — Percentage Yields of Kerosene Relative to Total Oils Run 
to Si ills in Various Parts of the United States During the Four 
Quarters of 1920 



Yield of Kerosene in Percentages of Total Oils Run to Stills 


Refinery Districts 


First 
Quarter 


Second 
Quarter 


Third 
Quarter 


Fourth 
Quarter 


Year 


East Coast 

Pennsylvania, etc. 

111., Ind., etc 

Kan., Okla., etc. . 

Tex., La 

Wyo., Colo., etc. . 
California 

Country 


15.7 

18.9 
11.8 
14.4 
15.3 
10.6 
6.6 

13.6 


11.4 
18.0 
10.9 
12.6 
13.2 
13.3 
5.9 

11.6 


10.0 

15.8 
9.6 
10.8 
12.9 
12.1 
5.6 

10.6 


10.2 
17.9 
11.4 
13.8 
13.1 
11.3 
5.9 

11.5 


12.9 
17.6 
10.9 
13.0 
13.7 
11.7 
6.0 

11.9 



134 



KEROSENE 



quarters of the year, in percentages of the full year's requirement, 

;is fnllnWS • 



LstQ. 2dQ. 3dQ 

17.6 per cent 25.0 per cent 33.4 



4th Q. 

per cent 23.4 per cent 



Plotting the average gasoline demand against the average kero- 
sene yields, we get two complementary curves, as shown in Fig. 64, 
which reflect the seasonal response made by the kerosene supply to 
the gasoline demand. In other words, in summer more of the light 
kerosene ends are introduced into the gasoline supply than in winter. 
This tendency is in keeping with the seasonal variation in the end- 
point of gasoline, as interpreted in Fig. 49, page 112. 



Table 58. — Yields of Kerosene by Quarters of 1920 in Percentages of 
the Yield in the Third Quarter of the Year 



Refinery Districts 


First 
Quarter 


Second 
Quarter 


Third 
Quarter 


Fourth 
Quarter 


East Coast 


157 
120 
123 
133 
119 
88 
118 

128 


114 
114 
114 
127 
102 
110 
105 

110 


100 
100 
100 
100 
100 
100 
100 

100 


102 
113 
119 
128 
101 
94 
105 

109 


Pennsylvania, etc 

Illinois, Indiana, etc 

Kansas, Oklahoma, etc . . . 

Texas, Louisiana 

Wyoming, Colorado, etc . . 
California 


Country 



Current Trend of Supply and Demand. — The trend of the major 
factors entering into the interplay between supply and demand is 
shown by months for the period 1917-1921 in Fig. 65, the supporting 
data appearing in Table 59. The outstanding features of the chart 
are: The horizontal trend of domestic consumption; the high 
ratio of exports to domestic consumption; the upward tendency in 
stocks on hand in 1919 and 1920; and the steady price advance in 
1919-1920 in particular, showing only a slight recession in the fourth 
quarter of 1920. Fig. 65 is presented as a type of chart particularly 
suitable for use in following the current situation from month to 
month, and the flow of the lines across the page giving the basis for 
drawing conclusions as to developments lying ahead. 

Relation of Production to Stocks. — The size and trend of pro- 
duction by months compared with the stocks of kerosene on hand 
in the various refinery districts in the United States for 1919 and 1920 



ANALYSIS OF DEMAND 



135 



are shown graphically in Fig. 66. The chart brings together the 
refine ;y statistics for kerosene in a form suitable for drawing deduc- 
tions as to the variations in supply and demand in various parts of 
the country. The type of chart is presented as a practical method 
of interpreting a complex range of statistics difficult of analysis in 
tabular form. The data on which the chart is based are given in 
Table 60. 



INDEX 
500 



400 
300 



DEMAND FOR GASOLINE 






2ND Q. 



4TH Q. 



Fig. 64. — Seasonal correlation between the demand for gasoline and the yield of 

kerosene. 



The outstanding feature of Fig. 66 is the large accumulation of 
stocks in the East Coast and Texas-Louisiana districts. A con- 
trast is offered for the year 1920 between the declining production of 
the East Coast district and the steadily advancing output of the 
Texas-Louisiana region. 

Analysis of Demand. — The demand for kerosene is mainly for 
purposes of illumination and heating, although of recent years a 
growing quantity has come under requisition for power purposes in 
tractors, motor-boats, and stationary engines. The exact percent- 
age consumed for power purposes is difficult to ascertain, because 
reliable statistics on the number of power units in use are not avail- 
able and many appliances are designed to use either gasoline or 
kerosene. A rough interpretation of the trend of demand, with no 
pretense to exactitude, is presented in Fig. 67. 

It will be observed that export requirements have always bulked 
large, although foreign shipments suffered serious curtailment during 
the war, particularly in 1917 and 1918 when the far eastern markets 
were difficult of access because of the shortage in shipping. The 
increase in domestic demand has been slight compared with the rapid 
rate at which gasoline requirements have grown; and much, if not all, 
of the recent increase has been due to the employment of kerosene 
for power purposes. 



136 KEROSENE 

Table 59. — Summary of the Kerosene Situation 



Period 


Produc- 
tion, 
Millions 

of 
Gallons 


Stocks,* 
Millions 

of 
Gallons 


Exports, 
Millions 

of 
Gallons 


Domestic 
Consump- 
tion, 
Millions 

of 
Gallons 


Average 
Domestic 
Price 
(Tank- 
wagon) 
Cents per 
Gallon 


Average 
Export 
Price, 

Cents per 
Gallon 


By years: 1914 

1915 

1916 

1917 

1918 

1919 

1920 


1935 

i455 
1727 

1825 
2342 
2320 


498 

380 
339 
393 


1010 

837 
855 
658 

491 
979 

862 


1452 
1404 
1404 


7.6 

7.1 
7.9 

8.5 

10.2 
12.7 
17.1 


6.3 
6.0 
6.5 
7.4 

10.3 
12.2 
15.4 


By months : 

1919. January. . . 
February. . 
March .... 

April 

May 

June 

July 

August .... 
September . 

October. . . 
November . 
December . 


159 
164 
170 

183 
190 
179 

206 
220 
199 

227 
215 
229 


332 

303 
295 

276 
245 
253 

280 
296 
312 

329 
347 
339 


68 
67 
54 

93 

80 

124 

76 
84 
73 

94 
70 
93 


138 
126 
124 

108 
142 
47.1 

103 
120 
110 

115 
132 
144 


10.9 
10.9 
11.1 

11.4 
11.8 
12.4 

13.3 
13.9 
14.0 

14.3 
14.3 
14.6 


10.0 
11.2 
12.0 

10.8 
12.3 
11.9 

12.0 
12.6 
13.2 

12.6 
14.9 

12.8 


By months: 

1920. January. . . 
February. . 
March .... 

April 

May 

June 

July 

August .... 
September. 

October. . . 
November. 
December . 


196 
195 
191 

184 
181 
174 

172 

189 
199 

214 
215 
211 


328 
330 
335 

376 
419 
421 

411 
379 
379 

384 
399 
393 


81 
76 
80 

68 
57 
62 

59 
75 
63 

70 

81 
90 


127 
116 
107 

74 

81 

110 

124 
146 
135 

140 
119 
127 


15.6 
15.8 
16.3 

16.6 
16.6 

17.0 

17.1 
18.0 
18.2 

17.8 
17.8 
17.8 


13.4 
13.7 
13.9 

14.7 
17.2 
17.1 

16.5 
16.9 
14.8 

15.1 
16.0 
15.7 


By months: 

1921. January. . . 
February. . 
March .... 

April 

May 

June 


205 
163 
169 

156 
145 
142 


419 
430 
446 

459 
452 
435 


79 
68 
64 

59 
52 
64 


100 

84 
89 

84 

100 

95 


17.5 
14.9 
14.6 

14.0 
12.6 
11.5 


18.4 
16.2 
15.7 

15.1 
11.4 

12.8 



* End of period. 



ANALYSIS OF DEMAND 



137 



There are many specialized uses to which kerosene is put, on 
which consumption statistics are not available. One of the most 
interesting of these uses is in the tail-lights on trains, where a special 
type of long burning kerosene is still employed even when the train 



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Fig. 65. — Trend of the kerosene situation in the United States by months, 

1917-1921. 



is otherwise illuminated with gas or electricity. The persistence of 
kerosene in this connection illustrates the fundamental importance of 
form value, since the cardinal requirement is dependability under 
any emergency, to which the form of kerosene is better adapted 
than either gas or electricity. 



138 



KEROSENE 



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THE CHANGING CHARACTER OF KEROSENE 



139 



The Changing Character of Kerosene. — The major use of kero- 
sene is for lighting and in the early days of its development constant 



PRODUCTION 



MILLIONS 

OF 
GALLONS 

100 



"I 



50. 

25 

0> 



25 1 

o^ 




-^^^rr rr-— ~r7~~7^ 



ioo 

i 

50 n 
25 
O 



25 z 

ol 



■zi^l i r~ nimr: 



1919 



zz 



^s^z^zrrrirzzrZzr: wYo.-coLo.,etc 



1920 



EAST COAST 



PENN., etc. 



ILL.-IND., etc. 



KAN.-OKLA., etc. 



STOCKS ON HAND 




1919 



1920 



Fig. 66. — Production and stocks of kerosene in the various refinery districts of 
the United States, by months, 1919-1920. 

effort was expended upon obtaining a product with requisite wick- 
climbing properties. Even in testing the commercial product to-day, 
no chemical examination has succeeded in replacing the practical 



140 



KEROSENE 



test in a lamp. No end of ingenious work has also been devoted to 
perfecting the kerosene lamp, so that to-day we have a delicately 
adjusted balance between the physical properties of the fuel, on the 
one hand, and the mechanical properties of the appliance, on the 
other. Of late years, however, the shift of the light kerosene ends 
into the gasoline supply, together with certain compensating changes 
at the heavy end of the series, has somewhat disturbed the balance 
and created new problems in the manufacture of kerosene, 



MILLIONS 
OF GALLONS 



2500 



2000 



1500 



T000 



500 




1909 1914 1917 1918 1919 1920 

Fig. 67. — Analysis of the demand for kerosene, 1909-1920. 



If the demand for gasoline dictates still deeper cuts into the crude, 
causing further encroachment upon the light kerosene ends, a point 
will soon be reached when the supply will be thrown out of adjust- 
ment with the whole range of appliances to which it is now comple- 
mentary. Here again, therefore, we have a curious example of how 
shifting economic currents critically affect the mechanical details of 
technical developments. 

The Future of Kerosene. — The demand for motor-fuel is so in- 
sistent that it is already encroaching upon the supply of kerosene, 
both directly and indirectly — directly by the development of engines 
designed to burn kerosene, and indirectly by the blending of light 
kerosene ends with the gasoline supply. Much attention has also 



THE FUTURE OF KEROSENE 141 

been devoted to cracking kerosene into gasoline, although com- 
mercial success has not yet been attained in this direction. 

The future requirements for motor-fuel loom so large that it 
seems inevitable that kerosene should be still further encroached 
upon. Whether this tendency will proceed to the point of com- 
pletely extinguishing the product as an illuminating agent cannot 
wholly be foreseen, although it would not be entirely unexpected if 
this product some years hence should be known as " the light that 
failed." Over against this contingency, however, must be placed 
the social importance of kerosene to the farm and rural community; 
and while the economic pressure of rising price will tend to divert 
it from this social role, counter forces of a politico-economic nature 
may set up adequate defense to save a modicum of supply from utter 
extinction. 



CHAPTER XI 



FUEL OIL 



In an economic sense, fuel oil is the residue left over from the 
country's supply of crude petroleum after other demands are satisfied. 

This product comprises 

MILLIONS L L 

three varieties : Crude 
used as such; residuum 
fuel oil derived mainly 
from skimming and top- 
ping refineries; and dis- 
tillate fuel oil, or gas oil, 
turned out chiefly by in- 
termediate and complete- 
run refineries. The rela- 
tive proportions of these 
three types carry consid- 
erable significance in re- 
spect to the future course 
of this commodity. A 
rough approximation of 
the ratio of crude oil 
used as such to fuel and 
gas oil is given in Fig. 68. 
The U.S.Bureau of Mines 
has estimated the ratio 
of distillate fuel oil to 




Fig. 68. — The relation between fuel oil, other oil 
products, and crude oil fuel in the United States, 
1910-1920. 



residuum fuel oil for the year 1918, as follows: 



Table 61. — Fuel-oil 


Supply in 1918 by Types of Fuel 


Product 


Millions of Barrels 


Per Cent of Total 


Distillate fuel oil, or gas oil ... . 

Light residuum fuel oil 

Heavy residuum fuel oil 


19* 

48 
164 


8 

21 
71 



*The American Gas Association estimates the 1919 output of distillate gas oil to be 
30 million barrels, as likewise does the Census of Manufactures for 1919. 

142 



SOURCES OF FUEL OIL 



143 



GAS & FUEL 
OIL 



FTTH OTHER PRODUCTS 
LLl^J AND LOSSES 



EAST COAST 



PENN. ETC. 



ILL.IND. ETC. 



KAN. OKLA. ETC. 



It will be observed from these proportions, which have not greatly 
changed since 1918, that residuum fuel oil overwhelmingly predom- 
inates over distillate fuel oil, with the heavy variety of residuum in 
striking excess of the light. Fig. 68 and the table above emphasize 
the residual character of fuel oil, which suggests why this product 
has so characteristically 
commanded a low price 

and suffered wide fluctu- TOTAL OILS RUN TO stills = 19.5 billion gallons 
ations in market value. 

Sources of Fuel Oil. — 
Fig. 69 compares the out- 
put of fuel oil with the 
production of other oil 
products in various parts 
of the country in 1920. 
It will be noted that the 
refineries of the East 
Coast, of Oklahoma- 
Kansas, of Texas-Louisi- 
ana, and of California 
represent the dominant 
sources of this product. 
Leaving the California 
output to one side, 
since the Far West and 
exports consume the 
fuel-oil of that state, 
the oil fuel available to 
the rest of the United 
States is seen to be 
derived almost entirely 
from refineries on the 
East Coast and in the 

south-central portion of the country. The rapid development of 
the oil-fields of the Mid-Continent, the Gulf Coast, and Mexico 
is directly responsible for this grouping of production, since 
crude petroleum has thereby been made available in advance 
of the higher types of requirements and in consequence the 
major portion has been forced to find an outlet for the time being 
in the only available direction — as steam raising fuel in competition 
with coal. This outcome has also been accentuated by the growing 
prominence of heavy, asphaltic crudes in the country's supply, a 
type of raw material ill adapted to yielding at once high percentages 




TEX.- LA. 



WYO.-COLO. ETC, 



CALIF. 



IO 20 30 40 50 60 70 80 90 100# 
FIGURES IN RECTANGLES ARE MILLIONS OF GALLONS 

Fig. 69. — The production of gas and fuel oil 
compared with the production of other petro- 
leum products in various parts of the United 
States in 1920. 



144 



FUEL OIL 



of the more desirable oil products by means of the technology devel- 
oped for treating the lighter oils. To a notable degree, fuel oil is the 
accompaniment of oil-field development in advance of adjustments 
in demands and in refining technology. 

The output and percentage yield (with reference to the total 
volume of oil distilled) of fuel and gas oil l in the various refinery 
districts of the United States for 1918, 1919, and 1920 are shown in 
the following table: 



Table 62.- 



-Production and Percentage Yield of Fuel and Gas Oil in the 
United States by Refinery Districts, 1918-1920 



Refinery District 


1918 


.1919 


1920 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oil 
Run to 

Stills 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oil 
Run to 

Stills 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oil 
Run to 
Stills 


East Coast 

Pennsylvania, etc. . . 
Illinois, Indiana, etc. 
Kan., Okla., etc. . . . 
Texas, Louisiana . . . 
Wyoming, Colorado. 
California 

Total 


1119 

202 

344 

1344 

1934 

244 

2138 


37.3 

23.2 

27.2 
45.6 
52.9 
35.1 
63.6 


1226 

169 

408 

1259 

1912 

280 

2300 


35.9 
17.8 
24.8 
44.0 
48.1 
33.4 
07.7 


1941 
208 
564 

1337 

2392 
213 

2206 


50.3 
21.1 
28.4 
44.0 
45.9 
21.3 
63.8 


7321 


46.3 


7627 


44.3 


8861 


45.5 



It will be observed that while the percentages of oils distilled 
that were turned into fuel and gas oil have remained fairly constant 
over the three-year period for the country as a whole, marked changes 
have taken place in several of the refinery districts. For example the 
East Coast refinery district shows a jump from a 35.9 per cent yield 
in 1919 to a 50.3 per cent yield in 1920, an advance attributable to 
the great volume of Mexican crude subjected to topping in the 
latter year; while the Texas-Louisiana and Wyoming-Colorado dis- 
tricts show a steady decline from 1918, a change arising from the 
growth of complete-run refineries on the Gulf Coast and of cracking 
installations for converting fuel oil into gasoline in Wyoming. With 
a curtailed supply of crude and a mounting demand for light dis- 
tillates, the average percentage yield for the country as a whole will 
ultimately tend significantly downward. 

1 In the official statistics, gas oil and fuel oil are not separately reported. 



RELATION TO REFINERY PRACTICE 145 

Relation to Refinery Practice. — There are four connected and 
overlapping stages in the evolution of refinery practice in the United 
States, through which the older producing fields of the country have 
entirely passed and through one or the other stages of which the 
newer fields are now progressing. Thus the crude petroleum pro- 
duced may be (a) used as such, with a modicum of preparation; (6) 
subjected to topping or skimming processes, in which a part of the 
gasoline and kerosene is extracted, leaving the dominant portion of 
the crude as a residuum to be used for fuel; (c) treated to more com- 
plete refining, in which a larger number of commodity values, includ- 
ing lubricants, are extracted ; or (d) submitted to cracking refining, in 
which not only an approach to a full extraction of commodity values 
is made, but a portion of the less valuable components is subjected 
to rigorous treatment for conversion into more valuable products. 

Where the crude is used in the raw state, practically the whole 
output is fuel oil. With topping or skimming refining in its various 
stages, from 50 to over 90 per cent of the raw material is turned 
out as fuel oil. With transition to complete refining, the proportion 
of fuel oil becomes decreasingly less and partly of a superior quality 
(distillate gas oil); and when cracking refining is introduced, fuel 
oil (or rather its preferred variety, gas oil) becomes in turn the raw 
material for further refining, and the yield of fuel oil is cut down in 
still further degree. 

Topping and skimming plants go along with flush conditions in 
oil-field development. They spring up quickly wherever the supply 
of crude petroleum is abundant and cheap; they require a relatively 
small outlay of capital and for a period are profitable, in many 
instances exceedingly so. With high cost crude, however, they 
become uneconomic, and either cease to operate or change to plants 
making a fuller extraction of values. Up to the present the topping 
and skimming capacity of the country, while showing fluctuations in 
conformance to conditions of supply and demand in the oil market, 
has been increasing, owing to the upgrowth of new plants in excess 
of the plants going out of existence or changing over to more complete 
refineries. The development of topping plants has also been stim- 
ulated by the mounting imports of crude oil from Mexico, although 
many skimming plants were forced out of existence in the Mid- 
Continent and Gulf regions under the conditions of reduced demand 
that came into play in late 1920 and early 1921. As oil-production 
conditions mature, however, the topping and skimming types will 
tend to give way to complete refineries and the relative yields of fuel 
oil will decline to proportions characteristic of such refinery districts 
as Pennsylvania and Illinois-Indiana. (See Fig. 69.) 



146 FUEL OIL 

Development of Cracking Refining. — In response to the expanding 
demand for motor-fuel the upgrowth of cracking refining has been 
conspicuous since 1915. In 1920 roughly 15 million barrels of gaso- 
line were contributed by cracking, over the quantity producible 
without its aid. This output, in turn, represented a consumption 
of from 30 to 40 million barrels of distillate fuel oil, or gas oil. The 
inevitable result of such a large diversion of gas oil was seen in the 
1920 shortage of this product and the concurrent agitation of the gas 
manufacturers under this head. 

The evident inability of cracking growth to keep pace with the 
increasing demand for motor oil has been reflected in a change in 
end-point of gasoline, which in turn has increased the consumption 
of motor oil as a result of crank-case dilution. This effect has 
further stimulated the upgrowth of complete-run refining at the 
expense of skimming processes. Thus another cycle of events has 
been tending in the direction of curtailment in fuel oil output. The 
various factors in the situation are complex, displaying many fluc- 
tuations and reversals; but the net changes are toward an ultimate 
curtailment in the percentage yield of fuel oil. 

Excessive Competition in Marketing Fuel Oil. — In recent years, 
the output of fuel oil in the newly developed oil sections of the country 
has created unsettled marketing conditions for this product. Because 
of the bulk in which fuel oil was produced, the difficulties of main- 
taining adequate storage, the seasonal character of the demand, and 
other factors, keen competition in marketing resulted. In point of 
fact, competitive efforts in excess of what was advantageous or 
even necessary were frequently in evidence, since lack of confidence 
on the part of refiners with storage tanks approaching the limit of 
capacity often led to a feeling of overproduction, which resulted in 
drastic price cutting and other measures destructive of profitable 
disposal. Such conditions were aggravated also by a periodic over- 
production of crude petroleum, as in the Cushing field in 1915, in 
the North Texas fields in 1919, and throughout much of the country 
in 1920-1921. 

As the situation is shaping up ahead, with a dearth of crude 
petroleum and growing demands in prospect, the competitive condi- 
tions surrounding the marketing of fuel oil will be largely mitigated. 
A foretaste of this prospect was afforded in the winter of 1917-1918 
under the stress of war conditions. The reaction of 1919, arising 
from an overstimulation of productive effort in the face of an imme- 
diate stoppage in war requirements, was merely a passing incident. 
In late 1919 the influences outlined above come forward with due 
effect accentuated by the coal strike and by restrictions in transpor- 



TREND OF FUEL OIL PRODUCTION 



147 



MILLIONS 

OF 

BARRELS 

250r 



100 

90 
80 
70 

60 

50 





































s' 


y 












o-> 




* 














,-jS 


z^" 








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^ 


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% 


„*«'' 










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U 


£2 


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^ 






— 


^ 


^ 















SCALE OF 

INCREASE OR 

DECREASE 

+ lOO^ 
+ 80$ 



I 

i: 



60^ 
40# 

20 Jg 

0?S 

io# 

20$ 
30 # 

40# 

50$ 



tation facility. Again in 
1920-1921 conditions 
swung to the opposite 
extreme, when a highly 
stimulated crude produc- 
tion both in this country 
and Mexico found an in- 
appropriate economic set- 
ting in a time of industrial 
depression. But ultimate- 
ly supply will lag perman- 
ently behind demand and 
then the whole country 
may be expected to exper- 
ience a growing scarcity of 
this product. 

Trend of Fuel Oil Pro- 
duction. — The rate at 
which the production of 
fuel oil and gas oil has 
been increasing in the 
United States during the 
past decade, compared 
with the increase of gasoline, kerosene, and lubricating oils, is shown 



1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 
TREND OF PRODUCTION 
ACTUAL PRODUCTION 



Fig. 70. — The relative growth in output of the 
four principal petroleum products in the 
United States, 1910-1920. 



graphically on a ratio scale in Fig. 70. 



It will be observed that the 
straight line fitted to the 
curve for fuel oil is steeper 
than the trends of kerosene 
and lubricating oils, but 
less steep than the trend 
of gasoline. The relative 
volumes of the four pro- 
ducts turned out during 
the same period are de- 
picted in Fig. 71. The 
sharp rise in gasoline de- 
mand (Fig. 70) is seen to 
have notably restricted the 
output of kerosene (Fig. 
71), and to have begun to 

__ „„ ^ , ,. ,. . ,, , exert a similar effect 

Fig. 71. — The relative proportions of the four 

principal petroleum products produced in the u P on the production ot 

United States, 1910-1920. fuel oil. 




148 FUEL OIL 

Table 63. — Summary of the Gas and Fuel Oil Situation 



Period 



Produc- 
tion, 

Millions 

of 
Gallons 



Stocks,* 
Millions 

of 
Gallons 



Exports, 
Millions 

of 
Gallons 



Domestic 
Consump- 
tion, 
Millions 

of 
Gallons 



Average 

Domestic 

Price, 

Dollars 

per 
Barrel 



Average 
Export 
Price, 
Dollars 

per 
Barrel 



By years: 1914 
1915 
1916 
1917 

1918 
1919 
1920 



3734 

4664 
6513 

7321 

7627 
8861 



578 

659 
714 

847 



703 

812 

964 

1124 

1201 

618 

847 



6039 
6954 
7891 



0.90 

.72 

1.04 

1.57 

2.01 
1.59 
2.79 



1.15 
1.16 
1.19 
1.70 

2.33 

2.22 
2.78 



By months: 

1919. January. 
February 
March. . 



April . 
May. 
June. 



July .... 
August . . 
September 

October. . 

November 

December 



590 
554 
575 

589 
652 
632 

638 

686 
683 

680 
663 

685 



646 
693 
749 



789 
812 

818 
830 
862 

829 
791 
714 



75 
37 
37 

46 
43 
54 

45 
39 
39 

66 

82 
57 



528 
471 

482 

485 
629 
564 

587 
635 
612 

649 
619 
705 



1.88 
1.60 
1.55 



44 

40 



1.37 



1.44 



1.49 
1.62 
2.53 



2.53 
2.10 
2.31 

2.16 
1.97 
2.15 

2.15 
1.91 

2.08 

2.34 
.2.36 
2.14 



By months: 

1920. January. 
February 
March. . 



April 
May. 
June. 



July.. 

August 

September 

October . . 
November 
December 



618 
590 
687 

643 
707 
690 

751 
834 

837 

823 
823 
859 



652 
590 
580 

591 
619 
642 

655 
709 
771 

799 

809 

837 



75 
52 
68 

78 
70 
68 

79 

59 
60 

93 
65 

84 



605 
600 
629 

554 
609 
599 

659 
721 
714 

703 

748 
747 



2.33 
2.33 

2.88 

2.93 
3.24 
3.18 

3.12 
3.11 
3.02 

2.74 
2.44 
2.13 



2.10 
2.05 
2.25 

2.81 
2.67 
2.89 

2.88 
3.31 
3.33 

3.08 
2.96 
3.16 



By months : 

1921. January.. 
February. 
March . . . 

April 

May. . .. 
June 



837 


921 


110 


643 


1.92 


733 


993 


73 


588 


1.44 


758 


1005 


69 


677 


1.39 


813 


1056 


72 


690 


1.39 


817 


1163 


51 


659 


1.23 


826 


1249 


62 


678 


1.08 



3.26 
2.36 

2.85 

2.48 
2.52 
2.09 



* End of period. 



CURRENT TREND OF SUPPLY AND DEMAND 



149 



Current Trend of Supply and Demand. — The trend of the major 
factors entering into the interplay between supply and demand is 
shown by months for the period 1917-1921 in Fig. 72, the supporting 
data being presented in Table 63. The outstanding features of the 
chart are: The distinctly complementary relationship between stocks 




Fig. 72. — Trend of the gas and fuel oil situation in the United States by months, 

1917-1921. 



and price; the tendency for production to show a marked seasonal 
variation in conformance with the demand for gasoline; and the 
degree to which exports have fallen away since 1918. 

Relation of Production to Stocks. — The size and trend of pro- 
duction by months compared with the stocks of fuel and gas oil on 



150 



FUEL OIL 



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RELATION OF PRODUCTION TO STOCKS 



151 



PRODUCTION 



25* 



too 



/^ 



y- 



/^ 



1919 



w 



1920 



EAST COAST 



PENN., etc. 



ILL.-IND., etc. 



TEX. -LA., etc. 



STOCKS ON HAND 





KAN.-OKLA., etc. W 



WYO.-COLO,, etc. 



\-> 




V^\ 



'919 



1920 



Fig. 73. — Production and stocks of gas and fuel oil in the various refinery 
of the United States by months, 1919-1920. 



152 



FUEL OIL 



hand in the various refinery districts in the United States for 1919 
and 1920 are shown graphically in Fig. 73, with the supporting data 
given in Table 64. The chart brings out the marked increase in 
production during 1920; especially on the East Coast and in Texas- 
Louisiana, compared with a general increase in stocks over the 
same period. The stocks on hand in California, however, display a 
sharp departure from this tendency in the latter part of 1920. 

Analysis of Demand. — Fuel oil is used mainly for fuel in the indus- 
tries and for transportation. Much of the power employed in the 
Pacific States and the Southwest is generated by this liquid fuel. 
The East is less dependent upon fuel oil, although the extension of its 
use here has also been rapid. The advantages of oil over coal are 
many and well known (see Fig. 74) and need not be detailed here. 



Steaming 



Storage 



Evaporation 



Heat Value 



Freight 




Labor 



Boiler Capacity 



Deterioration 
and Ash 



Combustion 



Efficiency 




Fig. 74. — Graphic comparison of the efficiency of coal and oil as fuel; after Tide 

Water Oil Company. 

Granted a bountiful supply at a low price, its field is as wide as that 
of coal itself. 

Fuel oil is the principal energy dependency of industry and 
transportation in the far West. The absence of an adequate 
supply and the relatively high price of coal make fuel oil a highly 
important factor in the entire Pacific coast region. An adequate 
supply of petroleum is probably of greater importance for the Pacific 
Coast than for any other section of the country, as it constitutes 
the principal or only source of fuel for heating purposes, marine 
and river navigation, railways, public utilities, and for mining and 
manufacturing activities (see Fig. 75). The petroleum industry 
of California supplies most of the fuel needs of Arizona, California, 
Nevada, Oregon, and Washington (see Fig. 76). The extent of the 
far-western dependency upon an exhaustible resource has turned 
active attention to the development of water-power in this region, 



DEMAND BY MARINE TRANSPORTATION 



153 



and hydroelectric installations have not only greatly increased in 
recent years but would appear to offer the principal avenue of relief 
to the eventual decline of California's oil-fields. 

Detailed information on the consumption of fuel oil in the rest 
of the country is wanting, but a rough division of the supply into 
principal uses is shown in Fig. 77, prepared from data for 1918. 1 
It will be of interest to appraise the trend of the most important 
demands, having in mind that if the supply proves inadequate 
requirements of lower economic standing will have to go by default 
in favor of those of higher economic rank. 



CALIF. 



Fig. 75. 



RAILROADS 



2QT9I ^ STEAM6HIPS 



PUBLIC UTILITIES 



MINING & SMELTING 




ARIZONA 



SOUTH 
AMERICA 



ALL 
OTHERS 



-Utilization of California fuel oil in 1917 by territories and types of 
uses; data from California State Council of Defense. 



Demand by Marine Transportation.— The merchant shipping of 
the world is rapidly turning to fuel oil as a source of power. The 
advantages to be derived from liquid fuel in the place of coal are so 
outstanding in facilitating bunkering, increasing the radius of steam- 
ing, and conserving labor in firing, that this trend will undoubtedly 
increase rapidly, especially in view of the highly competitive situa- 
tion developing between the merchant marines of Great Britain and 
the United States. The shift from coal to oil in the marine field has 
been spectacular. The new construction in shipping occasioned 
by the submarine ravages during the war has served to accentuate 
1 Kindly supplied by G. B. Richardson, U. S. Geological Survey. 



154 



FUEL OIL 




Fig. 7G. — Distribution of California fuel oil in the western states; after California 
State Council of Defense. 



DEMAND BY MARINE TRANSPORTATION 



155 



the change. At the beginning of 1921 the world's merchant shipping 
approximated 55 million tons. Of this tonnage, around 9 million 
tons is already on an oil-burning basis, of which nearly a million tons 
is fitted with Diesel engines. Expressed in terms of oil, this shipping 
when fully employed represents an annual fuel oil demand of approx- 
imately 90 million barrels. The rate of change from coal to oil may 
be judged from the fact that of the total world tonnage in 1918-1919, 



PRODUCTION 



CONSUMPTION 



CRUDE 
USED AS FUEL 




GAS & FUEL 
OIL 

MARKETED 

BY 
REFINERIES 



172 



30 | 











EXPORTED 



BUNKER OIL 



MERCHANT MARINE 
(1919) 



PACIFIC COAST R.R. 



OTHER RAILROADS 



OILFIELD FUEL 



GAS OIL USED IN 
GAS MANUFACTURE 



INDUSTRIES WEST OF 
ROCKIES 



INDUSTRIES EAST OF 
ROCKIES 



Figures are Millions of Barrels. 
Fi(i. 77.- — Consumption of fuel oil in the United States in 1918 by types of uses. 

12 per cent was fitted to use oil, while in the following year the pro- 
portion had increased to 18 per cent. (See Table 65.) 

The shift from coal to oil is being accomplished in two directions: 
By the conversion of coal-burners to oil-burners, and through the con- 
struction of motor vessels. The second aspect of the situation is 
just beginning to come effectively into bearing in the United States; 
but construction of motor ships in Great Britain and on the conti- 
nent of Europe is proceeding apace. While the motor ship using 
oil has a strong advantage over the oil-fired steamer in point of 



156 



FUEL OIL 



economy, evidently much of the world's shipping will make the transi- 
tion to oil through an intermediate stage of oil firing, which means 
for the present that 10 million barrels of fuel oil may be roughly 
estimated as the requirement of each million tons of shipping depend- 
ent upon oil. 

Table 65. — Classification of the World's Tonnage of Shipping by Types 

of Fuel 

Data from Lloyd's Register of Shipping, 1919-1920 * 





1918-19, 
Per Cent 


1919-20, 
Per Cent 


Coal as fuel 


82 
10.5 

1.5 

6 


76 

16.3 

1.7 
6 


Fitted to use oil fuel for boilers 

Fitted to use oil in internal-combustion 
engines 


Sail power only 




100 


100 



* Compiled by The Naval Annual, 1920-1921, London, p. 180. 

An analysis of the vessels turned out and under construction by 
the U. S. Shipping Board shows that the merchant marine of the 
United States is substantially on an oil-burning basis, as indicated 
by Table 66. The commitment of the Shipping Board to an oil- 
fired policy has already had a marked effect upon the fuel oil market. 
The requirements of the Board in 1920 were upwards of 30 million 
barrels. And while the industrial depression of 1920-1921 greatly 
curtailed this demand, the vigorous resumption of international 
trade may be expected to revive and intensify the fuel requirements 
in the marine field. 

Table 66. — Tonnage Produced and under Construction by U. S. Shipping 
Board, November, 1920 * 





Constructed, 
in Thousands 
of D. W. T. 


Under Con- 
struction, in 
Thousands 
of D. W. T. 


Total, 
in Thousands 
of D. W. T. 


Per Cent 


Oil-burners 


4159 

2141 
2245 


422 

18 
283 


9269 
4581 
2159 


49.4 

23.3 
27.3 


Coal-burners 


Coal or oil (eonvertible) . . 
Total 


8544 


724 


2528 


100.0 





Data from U. S. Shipping Board. 



DEMAND BY RAILROAD TRANSPORTATION 



157 



In recent years there has been a rapid growth in the quantity of 
fuel oil laden on vessels engaged in foreign trade, which increased 
from 14 million barrels in 1919 to 26 million barrels in 1920. A con- 
siderable portion of the total was used by vessels flying foreign flags 
and in a sense constituted foreign shipments. Data covering the 
quantity and price of this oil in 1919 and 1920 by important groups of 
ports appear in Table 67. 

Table 67. — Quantity and Value of Bunker Oil Laden at U. S. Ports on 
Vessels Engaged in Foreign Trade in 1919 and 1920 

Data from U. S. Bureau of Foreign and Domestic Commerce 





Quantity, 
Millions of Barrels 


Value, 
Dollars per Barrel 


1919 


1920 


1919 


1920 


Atlantic Coast ports 


8.41 

2.32 
3.29 


16.7 
3.95 
5.64 


2.37 
1.67 
1.69 


2.80 
2.37 
1.86 


Gulf Coast ports 


Pacific Coast ports 


All U. S. ports 


14.0 


26.3 


2.09 


2.53 





In addition to the merchant shipping requiring oil, the navies of 
the world are already largely on an oil-burning basis. The advan- 
tages of oil over coal for naval operations are too outstanding to be 
denied. While the naval demand is small in comparison with the 
requirements of merchant shipping, about 5 million barrels annually 
for the American Navy, this demand is a most insistent one and must 
be met irrespective of price. 

On the whole, it is evident that oil for merchant marine transpor- 
tation has assumed important proportions, and the strength of this 
demand is such that if necessary it can divert from industrial pur- 
poses the quantity needed for shipping requirements. 

Demand by Railroad Transportation. — Fuel oil is used in large 
quantities b}^ the railroads of the United States; and in the Far West 
railway transportation is largely dependent upon this fuel. The 
geographical distribution of the railroad demand for fuel oil is shown 
in Table 68, while the growth in the demand from 1909 to 1920 is 
indicated in Table 69. The advantages of oil over coal for railway 
transportation are not so outstanding as with marine transportation. 
Yet sufficient advantage is present to make it probable that in event 
of shortage the railway demand will rank distinctly above industrial 
demand in the price it can afford to pay for oil fuel in competition 



L58 



FUEL OIL 



with coal. In this general connection it should be borne in mind 
thai motor locomotives are a possibility, but their development 
would serve merely to raise the status of the demand, as is true in 
the matter of motor ships. 

Table 68. — Distribution of the Railway Demand for Fuel Oil in the 
United States in 1919 and 1920 

Data from American Petroleum Institute 

(In millions of barrels) 



Seel ion 


1919 


1920 


Eastern 


0.12 
0.87 
11.6 

18.1 

4.52 


0.03 
1.03 
15.6 

20.6 

4.45 


Soul horn 

Middle West and Southwest. . . 


Southwestern Pacific 

Northwestern 

Total 


35.2 


41.8 



Table 69. — Growth in the Consumption of FuelOil by American Railroads, 

1909-1920 

Data from U. S. Geological Survey and American Petroleum Institute 

(In millions of barrels) 



1909 


19.9 


1910 


23.8 


1911 


29.7 


1912 


33.6 


1913 


33.0 


1914 


31.1 


1915 


32.8 


1916 


38.2 


1917 


42.2 


1918 


36.7 


1919 


35.2 


1920 


41.8 



Demand by Public Utility Power Plants. — Public utility power 
plants in the United States consumed 13 million barrels of fuel oil 
in the production of electricity in 1920, as compared with 11 million 
barrels in 1919. The geographical distribution of this consumption 
is shown in Table 70. 



DEMAND BY AUTOMOTIVE TRANSPORTATION 



159 



Table 70. — Consumption of Fuel Oil by Public Utility Power Plants in 

the United States During 1920, by States 

Data from U. S. Geological Survey 

(In thousands of barrels) 



California 
Texas. . . . 
Kansas . . . 
Florida . . . 



Louisiana .... 
Missouri. . . . 
Oklahoma . . . 
Rhode Island . 



Georgia 

Arizona 

Massachusetts 
Washington. . . 



5625 

2883 

821 

631 

488 
449 
346 
321 

312 
239 
153 
143 



Mississippi . . . 
Alabama .... 
Arkansas. 
Wyoming 

Nebraska 

New York . . . 

Maine 

Connecticut . . 

South Dakota 

Oregon 

Others 

Total . 



110 

97 

84 
82 

80 
39 
31 
26 

25 
24 
73 



13,082 



Demand by Automotive Transportation. — Up to the present 
automotive transportation has been supported almost exclusively 
by the volatile products of the petroleum industry. An increasing 
quantity of distillate fuel oil, however, is now converted into gaso- 
line, and this item will continue to enlarge and make growing inroads 
upon the fuel oil supply. In addition, internal combustion engines 
using superior grades of fuel oil are coming into play, and a significant 
portion of the heavy traction element of automotive transporta- 
tion may ultimately pass substantially to a heavy-oil basis. Oil 
refiners are already meeting this tendency with the production of 
special distillates designed for internal combustion engines of the 
injection type. Once under full swing the heavy-oil automotive 
engine ma}' come to represent a very large requirement. The 
fuel oil supply is thus under requisition in two directions as a 
source of motor-fuel, and so insistent may such demands be expected 
to become in the future, that the product will gradually be diverted 
from most of its present applications and brought increasingly into 
action as a support to automotive transportation. 

Demand by Heavy-oil Stationary Engines. — The heavy-oil sta- 
tionary engines of the Diesel and semi-Diesel types are coming into 
growing importance in the United States. No data are available 
for estimating the present consumption under this head, but in 
mines and for oil pipe-line pumping and irrigation work in the Middle 
and Far West, and for many light and power plants of small size, 



160 



FUEL OIL 



there is an increasing utilization of this type of prime mover. It is 
certain that the heavy-oil engine already playing such an important 
part in power production in the older countries of Europe will enjoy 
a rapidly expanding use in the United States, and a significant 
demand for suitable types of fuel oil may therefore be anticipated on 
this score. 

Demand for Gas Manufacture. — A considerable quantity of fuel 
oil is consumed annually in the manufacture of gas. In the Far 
West where coal is lacking, residuum fuel oil is used for the produc- 
tion of oil gas; but in the rest of the country distillate fuel oil under 
the name of gas oil is employed to enrich gas made from coal or coke. 
(See Table 71.) The demand for gas oil was easily met so long as 

Table 71. — Estimated Consumption of Gas Oil in the Manufacture of 
Carbureted Water Gas and Mixed Gas in the United States During 
1920 by States * 

Data from American Gas Association 
(In thousands of barrels) 



New York 


6928 
2185 
1976 
1332 
1072 
555 

435 

388 
343 

285 
281 

278 

270 
233 
202 
184 
177 


Nebraska 


153 
152 
149 
122 

83 
76 

63 
59 
58 
36 
38 
36 

33 
31 
30 
22 
40 

18,324 


Illinois 


Georgia 


Pennsylvania 


Wisconsin 

Washington 


New Jersey 


Massachusetts. . . . 


Delaware 


Michigan . . 


Florida 


District of Columbia 

Connecticut . . 


New Hampshire 


Alabama 


Missouri . . 


South Carolina 


Iowa 


Colorado 


Indiana . . 


Ohio 


Maryland . . 


North Carolina 


Minnesota. . 


Tennessee 


Texas 


Maine 


Virginia . . 


South Dakota 


Louisiana . . 


Vermont 


Rhode Island. . 


Others 




Total 





* Does not include approximately 4450 thousand barrels of fuel oil used in manufacture 
of oil tras in the Pacific States. 

there was a surplus seeking an outlet in this direction. With the 
upgrowth of cracking, however, a shortage of gas oil developed, 
and the gas industry is deeply concerned with the ultimate effect of 
this change. The price of gas oil is now determined by the value of 



DEMAND FOR INDUSTRIAL PURPOSES 161 

motor-fuel, and the gas companies can obtain their accustomed supply 
only by entering into competition with automotive transportation. 
But since the price of gas is limited by public utility regulations, it 
seems probable that the gas industry will find increasing difficulty 
in paying a competitive price, and in consequence will be forced 
either to change their practice so as to use residuum fuel oil, which 
will tide them over for a time, or else gradually give up the employ- 
ment of oil, which is not fundamentally essential with improved 
methods. 1 In fact, when properly reorganized along modern lines, 
the gas industry will not only be able to operate without contributions 
from the oil industry, but will actually be able to contribute light oils 
as a new source of supply to oil refineries. The conversion of coal 
into gas under by-product practice not only has this possibility for the 
immediate future, but changes in this direction are likely to come 
with some measure of rapidity. 

Demand for Industrial Purposes. — Putting to one side the fuel oil 
Employed for other purposes, there was left in 1918 about 86 million 
barrels for the use of industry. Of this quantity about 36 million 
barrels was consumed west of the Rocky Mountains, where indus- 
trialism has grown up dominantly on an oil-fuel basis. This left 
roughly 50 million barrels to satisfy the industrial demands east of 
the Rockies. While these figures have changed somewhat since 1918, 
they go to show that the industrial field is meagerly served by fuel 
oil, in spite of the great furor that of recent years has developed in 
regard to the industrial shift from coal to oil. It is evident on closely 
analyzing the resource that the trend in this direction has been greatly 
exaggerated. Of the fuel oil consumed for industrial purposes east 
of the Rockies, a considerable proportion is used in the metallurgical 
industries where oil serves a distinct and unique purpose. Counting 
off this portion, there is left a really insignificant quantity as com- 
pared with the hundreds of millions of tons of coal consumed in 
industry. 

Under the conditions prevailing over the past few years, efforts 
were made to enlarge the eastern demand for fuel oil in railroad 
transportation and industry in competition with coal. This ten- 
dency was greatly accelerated during the war, and many came to see 
this outlet as the true direction in which fuel oil might come into its 
own. During the fall and winter of 1919-1920, in pursuance of the 
example of 1917-1918, widespread propaganda was put into effect 
in favor of oil as a substitute for coal. So vigorously was this idea 
pushed, and so uncritical were many in respect to its accomplishment, 
that the coal associations became apprehensive over, the possibility 

1 See Chapter XXIII. 



162 



FUEL OIL 



MIL! IONS 

OF 
BARRELS 



of serious inroads being made upon their industry, and arguments 
were even advanced to the striking miners at the time that the coun- 
try was no longer fundament ally dependent upon their efforts in 
mining coal. The public was also led to expect that a new element 
had been introduced into the fuel situation, and that the growing 
smokiness of cities and the fuel troubles of New England, and so on, 
could be remedied by the newcomer, oil. The unsoundness of the 
general view that prevailed in the latter part of 1919 may be seen 
from Fig. 78, which shows the meagcrness of the country's supply of 

fuel oil as compared with 
coal. To replace with 
fuel oil the coal consumed 
annually in the United 
States would require a 
production of crude 
petroleum of upwards 
of 3 billion barrels, a 
quantity sufficient to 
exhaust the entire do- 
mestic petroleum reserve 
in two years. 

Demand for Domestic 
Purposes. — In connec- 
tion with the efforts 
directed toward the sub- 
stitution of oil for coal 
in industry, there was 
considerable planning in 
Fig. 78. — The relative importance of coal and oil favor of widespread do- 
as fuel in the United States, 1910-1920. mestic consumption of 

fuel oil, especially in 
New York and New England. Such a project, however, may be 
regarded as an incidental offshoot of the general agitation, and 
there is no prospect of significant developments of this kind, in 
view of the fact that the domestic demand must of necessity take 
what is left after commercial requirements are satisfied. 

Summary of Demands. — It would seem from this recital that the 
manifold demands for fuel oil are simultaneously enlarging at the 
same time that the factors influencing the supply of fuel oil are losing 
force. Among the multiplicity of demands crowding in upon the 
supply of fuel oil, a great variety exists as regards economic strength, 
which is one way of saying thai certain of these demands can afford 
to pay more for fuel oil than can others. Where such is the case, 



2500 






















m 




/ 


— 




/ 










2000 




■.:■}}}:■ 








..:•■ 










':'■■'■'■ O. 


L EC 


UIVA 


_EN7 


•OF.'- 


COAL 


•FUE 


L 




500 














•'% 




:SS 


"^ 

























;Olt FVtV 







1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 



CONCLUSION 163 

and shortage develops, lower demands must go by default in favor of 
higher requirements. On this basis, residuum fuel oil will gradually 
disappear from the market, augmenting the supply of motor-fuel 
and increasing the output of special distillates adapted primarily 
to the needs of the heavy-oil engine. These changes may be expected 
to come into play rather quickly, so that a matter of a few years may 
see the fuel-oil situation quite radically at variance with that obtain- 
ing in 1921. 

Conclusion. — Fuel oil offers such a range of advantages over coal 
for ocean shipping, and such high economy can be effected through 
the use of the heavy oil motor, that the world's shipping is rapidly 
turning or planning to turn to this ideal fuel. In view of the limited 
nature of the resource, this tendency, once under full swing, may be 
expected to bring an advance in price such as will largely withdraw 
the product from its industrial fuel role, especially since the demand 
for gasoline at the same time will be pulling more and more heavily 
upon fuel oil through the avenue of cracking. As soon as fuel oil is 
fairly caught between the pressure of this twofold motor demand, its 
availability for purely industrial purposes on land in competition 
with coal will rapidly become a thing of the past. Fuel oil to the 
present has remained cheap only because of its production 'in advance 
of the growth of demands adjusted to its real possibilities. 

It is questionable, however, if the world's resources in petroleum 
can support for more than a transient period widespread shipping 
operations on an oil-fuel basis. Ultimately automotive transporta- 
tion on land may be expected to come into direct competition with 
marine transportation for petroleum supplies, and then the economic 
advantage now in favor of petroleum fuel oil for ocean shipping will 
be forced back to the side of coal in some form. 



CHAPTER XII 
LUBRICATING OILS 

Introduction. — Of the various products derived from petroleum 
lubricants represent the most intricate and perplexing to describe. 
The manufacture and application of lubricating oils is an art rather 
than a science; little reliable published knowledge exists in this field, 
and a dearth of scientific investigation has been accorded it. 
Even among practical lubricating men, there is no uniformity of 
practice or methods, and diverse opinions are available on almost 
every point. The subject is complicated further by variations in the 
character of the crude petroleums from which lubricants are manu- 
factured, by diversity in the types of refining employed in various 
parts of the country, and by an obscure and illogical nomenclature 
that adds to the confusion. The art of lubrication is still largely a 
matter of individual knowledge and trade secrets; and much remains 
to be desired in the way of accurate information on the subject. 

Relation to Crude Petroleum. — The lubricating components of 
crude petroleum are a graded series of heavy hydrocarbons possessing 
sufficient viscosity, or body, together with certain other inadequately 
understood properties, to fit them for lubricating service. The 
quantity and character of the lubricating components recoverable 
vary with the type of crude petroleum employed. The paraffin- 
base petroleums upon proper treatment yield up to 25 per cent of 
lubricating oils; the asphalt-base petroleums, up to 40 per cent or so; 
while the mixed-base crudes run from perhaps 10 to 20 per cent. 

In regard to the lubricating components of crude petroleum, 
Mabery states '} 

" The next series of hydrocarbons, of the general formula, 
C„H 2 „_ 2 , is found in all petroleum. Collecting in the fractions 
above 300° C. and having some viscosity, they form the lubricants 
in Appalachian petroleum that are prepared for sewing machines, 
typewriter machines, and for other similar light lubrication. The 
higher members of this series are also constituents of the heavy motor- 
car lubricants. Heavy petroleum, in general, is composed to a large 

1 Composition of Petroleum and Its Relation to Industrial Use, American 
Institute of Mining and Metallurgical Engineers, Publ. No. 158, Feb., 1920, p. 4. 

164 



RELATION TO REFINERY PRACTICE 165 

extent of these hydrocarbons; but although in such general use, 
their structure has not yet been ascertained. 

Next in order is the series C„H 2 »_4, made up of hydrocarbons 
possessing a high viscosity; C 25 H 46 is one of them. These hydro- 
carbons form the constituents of the best lubricants it is possible to 
prepare from petroleum. Heavy petroleum with an asphaltic base 
contains these hydrocarbons in large proportion, and lighter varieties 
in smaller amounts. With boiling points above 250° C. in vacuum, 
the decomposition, when distilled with dry heat, is partly prevented 
by the use of steam in the still or, better, by excluding air and reduc- 
ing the boiling points by exhaustion when these hydrocarbons may be 
distilled repeatedly with but slight decomposition. Straight petro- 
leum lubricants are, therefore, made up mainly of a few viscous hydro- 
carbons of the last two series mentioned, and they are graded by 
varying the mixtures to provide for the kind of lubrication 
desired." 

The lubricating components of paraffin crudes are lighter in 
weight and less volatile (vaporize at higher temperatures) than the 
lubricating components of asphaltic crudes; because of this fact, 
coupled with differences in the behavior of the associated paraffin 
wax and asphalt, the recovery of the lubricating content differs in 
the two types of crude. Thus the lubricating oils in paraffin-base 
crudes are only partly distilled off, the larger portion being recovered 
in the form of a residue ; whereas with asphaltic crudes, the lubricating 
content is completely distilled off, leaving a residue of asphalt. 
This basic difference in lubricating yield gives rise to two main types 
of lubricating oils, residual lubricating oils (called cylinder stocks) 
and distillate lubricating oils (embracing all other varieties), — a 
distinction which has far-reaching economic consequences. 

The bulk of lubricating oils in this country is still made from 
paraffin-base crudes, although there is a marked tendency of late to 
bring a growing quantity of mixed-base and asphalt-base crudes into 
lubricating production, especially since the Eastern paraffin crudes 
are running short of requirements. The dominant place held by the 
paraffin crudes in lubricating manufacture is due to the early avail- 
ability of the Pennsylvania paraffin-base crudes and to their peculiar 
adaptability for yielding oils of sufficient body and heat resistance for 
utilization in steam-cylinder lubrication. Thus the paraffin crudes 
have largely determined the current practice in the refining and 
application of lubricating oils ; and prevailing opinions on matters of 
lubrication are still largely colored by the historical precedence of the 
Pennsylvania crudes. 

Relation to Refinery Practice. — There are two principal methods 
of refining in use in this country — steam distillation and dry, or 
destructive, distillation. The first is used where high-grade lubri- 



166 LUBRICATING OILS 

eating oils are to be produced; the second causes some decomposi- 
tion, or cracking, and is employed where a maximum yield of gasoline 
is sought without reference to lubricating output, although a lessened 
and inferior yield of lubricating oil may at the same time be gained. 
A full extraction of lubricating values reduces the output of the more 
volatile distillates such as gasoline and kerosene. 

As the demand for lubricating oil increases, one refinery after 
another changes from destructive distillation practice in which the 
focus is upon gasoline, to steam distillation practice in which the prime 
objective is lubricating oil. Thus the refineries of the country may 
be classified into (a) skimming plants, in which the volatile distillates 
are hastily removed from the main body of the crude, which is 
thereby left in the form of residual fuel oil; (b) plants running to 
coke, wax, or asphalt, in which the practice has evolved to a fuller 
extraction of components, but with the focus still upon a maximum 
yield of light distillates, destructive distillation still dominant, and 
the yield of lubricating oil incidental or entirely lacking; and (c) 
plants running to lubricating oils, in which the main effort is 
directed toward the maximum yield and quality of these com- 
ponents. 

According to figures compiled by the U. S. Bureau of Mines in 
January, 1921, skimming plants constitute about 35 per cent of the 
refinery capacity of the country; plants running to coke or asphalt, 
in which lubricating manufacture is lacking or merely incidental, 
about 19 per cent; and plants paying considerable attention to 
the production of lubricating oils, approximately 46 per cent. It is 
thus apparent that much of the refinery capacity has not advanced 
to lubricating output, as is indicated also by a recovery factor of 
only 5.4 per cent while the average lubricating content of the crude 
supply of the country is upwards of 25 per cent. A vast volume of 
potential lubricants is burned annually in the form of fuel oil. 

Basic Types of Lubricating Oils. — Fundamentally there' are two 
types of lubricants from which the numerous grades on the market 
are manufactured; these are residual lubricating oil (cylinder stock) 
and distillate lubricating oil. Residual lubricating oil is made from 
paraffin-base and mixed-base crudes by steam distillation only. 
Distillate lubricating oil embraces three main varieties: (a) non- 
viscous neutrals, made from all three types of crude by steam dis- 
tillation; (b) viscous neutrals, of heavier body than the non-viscous 
neutrals, made from all three types of crude by steam distillation; 
and (c) paraffin oils, made from paraffin-base and mixed base crudes 
by destructive distillation. The relations of these major types of 
basic lubricants are shown in the following table: 



RESIDUAL LUBRICATING OIL 



167 



Table 72. — Principal Types of Lubricating Oils 



Types of Crude 


Steam Distillation 


Destructive 
Distillation 


Distillate 


Residual 


Distillate 


Paraffin-base 


Non-viscous neutrals 
Viscous neutrals 


Cylinder stocks 


Paraffin oils 


Mixed-base 


Non-viscous neutrals 
Viscous neutrals 


Cylinder stocks 


Paraffin oils 


Asphalt-base 


Non-viscous neutrals 
Viscous neutrals 











Residual Lubricating Oil (Cylinder Stock). — Cylinder stock is 
the residue left after gasoline, kerosene, gas oil, and lubricating dis- 
tillates have been distilled off from paraffin-base or mixed-base 
crudes. Practically all of the Eastern paraffin crudes are made to 
yield a maximum output of cylinder stock, but only a small portion of 
the Mid-Continent paraffin and mixed-base crudes are yet refined 
for this product. Asphaltic crudes do not produce cylinder stock, 
since their entire lubricating content may be distilled off, leaving 
a residue of asphalt instead of cylinder stock. 

Cylinder stock is relatively highly resistant to heat, and is con- 
sequence is used for the lubrication of steam cylinders, a service 
which distillate lubricating oils are unable to render satisfactorily 
because of their lower heat resistance. Cylinder stock is also highly 
viscous, or heavy-bodied, as compared with the neutrals made 
from paraffin-base and mixed-base crudes (although distillate lubri- 
cants of comparable body may be made from asphaltic crudes), 
and hence is widely in demand as a blending agent for giving the 
requisite body to oils designed for the lubrication of heavy service 
engines, machines, and motors. Much of the cylinder stock produced 
is filtered to gain a bright, attractive color, a property which the 
consumer has been taught to fancy and deem essential. 

Non-viscous Neutrals. — These oils are the light-bodied, low-vis- 
cosity distillates produced from paraffin-base and mixed-base crudes 
in connection with the manufacture of cylinder stocks, and from 
asphaltic crudes that arc run to lubricating oils. They are used for 
the lubrication of light machinery, especially the spindles of textile 
mills; but, lacking sufficient body, they must be blended with more 
viscous oils for the general run of lubricating service. Produced in 



168 LUBRICATING OILS 

greater quantities than required by light machinery, they are not in 
strong demand and their price is relatively low. 

Viscous Neutrals. — These oils are distillates of heavier body than 
the non-viscous neutrals; they are produced from paraffin-base and 
mixed-base crudes which are run to cylinder stock, and from asphaltic 
crudes which are subjected to proper refining. The viscous neutrals 
of asphaltic origin include oils of higher viscosity than those made 
from the paraffin crudes, being partly comparable in body to cylinder 
stock. The viscous neutrals of paraffin origin lack sufficient body 
for heavy-service lubrication, and hence for many purposes are 
blended with cylinder stock. The heavier-bodied neutrals of 
asphaltic origin have sufficient viscosity to support their utilization 
in unblended form for heavy-service lubrication. 

Paraffin Oils. — The so-called paraffin oils are lubricants incident- 
ally recovered in processes primarily concerned with the maximum 
output of gasoline and kerosene. They are not quite equal in qual- 
ity to the neutrals and stocks, since they are refined by destructive 
distillation which impairs the yield and quality of the lubricants 
recovered. The paraffin oils have been improved in many instances 
by better methods of manufacture, and although they may ulti- 
mately play a waning role, a large volume of such oils will 
undoubtedly continue to come on the market for a considerable 
period. 

Blended Lubricants. — The four major types of lubricating oils — 
non-viscous neutrals, viscous neutrals, cylinder stocks, and paraffin 
oils — may be used singly or appropriately blended. For light 
machinery, such as the spindles of textile mills, the non-viscous 
neutrals are usually employed, while the lubrication of steam cyl- 
inders demands a cylinder stock; but for the majority of appli- 
cations a neutral or paraffin oil is mixed with a cylinder stock, the 
function of the latter being to give the mixture sufficient body, or 
viscosity. For the better class of lubricating service, such as high- 
grade machinery and internal combustion engines, the paraffin oils 
are not regarded as adequate; hence much of the lubricating demand, 
including most of the high-grade (most profitable) portion, draws 
its requirements from the neutrals and cylinder stocks. The growth 
of industrial activity, during the past years in particular, has not 
only increased the demand for lubricating oils of all kinds, but the 
development of better grades of machinery and new types of engines 
has thrown a relatively greater demand upon the neutrals and 
cylinder stocks, to the growing exclusion of the paraffin oils and 
inferior types; at the same time that the trend of lubricating require- 
ments has been in the direction of more viscous oils, to the projection 



DEVELOPMENTS OF LUBRICANTS 169 

of a growing burden upon cylinder stocks, upon which the attain- 
ment of any considerable degree of viscosity has heretofore been 
dependent. In short, the demands for the various types of lubri- 
cating oils have been growing at different rates, with a strong swing 
toward oils of greater viscosity, and this tendency has been met by 
increasing use of blended oils, particularly mixtures of neutrals and 
cylinder stocks. In this wise, cylinder stocks, which are preferred 
for steam-cylinder lubrication because of their resistance to high 
temperatures, have come generally to be regarded as essential to 
the manufacture of high-grade lubricants of all other types requir- 
ing considerable body. 

Development of Lubricants from Asphaltic-base Petroleums. — 
While the changes in demand noted above were taking place, the 
growing production of asphaltic crudes, in the face of a slowing output 
of paraffin crudes upon which lubricant manufacture had been depend- 
ent, was stimulating the upgrowth of processes and refineries capable 
of making neutral oils from crudes which earlier were deemed fit only 
for yielding fuel oil. There is now an appreciable and increasing out- 
put of neutral oils of asphaltic-crude origin, and the neutrals so made 
cover a range of viscosities corresponding not only to the viscosities 
of the neutral oils made from paraffin-base crudes, but partly to 
those of cylinder stocks as well. In fine, so far as viscosities are 
concerned, the asphaltic crudes yield distillate lubricating oils of 
nearly as wide a scope as the combined distillate and residual lubri- 
cants obtained from the paraffin-base and mixed-base crudes. 

Since lubricating practice was established and developed on the 
basis of paraffin crudes, the introduction of lubricating oil of asphaltic- 
crude origin has naturally been handicapped by an immature tech- 
nology and a prejudiced market. The majority of practical oil men, 
brought up in the paraffin school, are reluctant to see any virtue in 
the newcomer, while oil men interested in the development of lubri- 
cants from asphaltic crudes are naturally strong advocates of their 
products. In consequence not only is there no unanimity of opinion 
on this point in the oil business, but two distinct and opposing points 
of view prevail — a situation that may be found even within a single 
company. The published and privately expressed opinions of the 
leading petroleum chemists and technologists in the country, how- 
ever, are practically unanimous in asserting that for all purposes other 
than steam-cylinder lubrication the lubricating oils made from 
asphaltic crudes are inherently as serviceable as those made from 
paraffin crudes. 

The Supply of Lubricating Oils. — The production of lubricating 
oils in the United States by refinery districts for the years 1918, 1919, 



170 



LUBRICATlXd OILS 



and 1920 is shown in the following table, while the data for 1920 are 
presented graphically in Fig. 79: 

Table 73- Production and Percentage Yields op Lubricating Oils in the 
United States, 1918-1920 



Refinery District 


1918 


1919 


1920 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oil 
Run to 

Stills 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oil 

Run to 

Stills 


Produc- 
tion, 
Millions 

of 
Gallons 


Per Cent 
of Total 

Oil 

Run to 

Stills 


East Coast 

Pennsylvania, etc . . . 
Illinois, Indiana, etc. 
Kan., Okla., etc. . . . 
Texas, Louisiana . . . 
Wyoming, Colorado. 
California 


257 
183 

97.5 
110 
123 
3.65 

66.9 


8.6 
21.0 

7.7 

3.7 

3.4 

0.53 

2.0 


280 
181 

102 

93.2 
121 
3.48 

65.6 


8.2 

19.0 

6.2 

3.3 

3.0 

0.41 

1,9 


329 

190 

126 
91.2 

203 
14.6 
92.1 


8.5 

19.3 
6.3 
3.0 
3.9 
1.46 
2.7 


Total 


841 


5.33 


847 


4.92 


1047 


5.37 



MILLIONS OF GALLONS 
O lOO 200 3QO 4QQ 



EAST COAST 



PENN. ETC. 



ILL.-IND. ETC. 



KAN.- OKLA. ETC 



TEX.^LA. 



WYO. COLO. ETCl 14.6 



CALIF. 




PERCENTAGE OF TOTAL OH-S 

RUN TO STILLS 

O 5 lO 15 20 




9.3 



Fkj. 79. — Output and percentage yields of lubricating oils in the United States 
by refinery districts in 1920. 

It may be seen from these exhibits that while the bulk of the 
lubricating oil is manufactured in the East, a notable and growing 
quantity is made in the Middle and Far West. The percentage 
yields are also seen to vary between wide limits — from 19.3 per cent 



TREND OF THE CURRENT SITUATION 



171 



in the Pennsylvania district, where lubricants have been longest 
manufactured, to 1.46 per cent in Wyoming, of recent note as an oil 
producer. These variations are another reflection of the great volume 





















































































































































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Fig. 80. — Trend of the lubricating oil situation in the United States by months, 

1917-1921. 



of crude petroleum used from which the lubricating content is not 
extracted. 

Trend of the Current Situation. — The trend of the major factors 
entering into the current interplay between the supply and demand 



172 LUBRICATING OILS 

Table 74. — Summary of the Lubricating Oil Situation 



Period 



By years: 



1914, 

1915 
1916 
1917 

1918 
1919 
1920 



Produc- 
tion, 
Millions 
of 

Gallons 



517 

624 
754 

841 

847 

1047 







Domestic 


Stocks,* 


Exports, 


Consump- 


Millions 


Millions 


tion, 


of 


of 


Millions 


Gallons 


Gallons 


of 
Gallons | 




192 
240 
261 




137 


280 




139 


257 


582 


137 


275 


574 


161 


411 


612 



Average 
Domestic 
Price (job- 
bing), 
Cents per 
Gallon 



15.6 

14.9 
18.3 
19.5 

30.9 
32.2 
48.9 



Average 
Export 
Price, 
Cents 

per 
Gallon 



13.7 

13.5 
16.5 
20.6 

29.4 
30.9 
38.0 



By months: 

1919. January. 
February 
March. . 



April . 
May. 
June. 



July. . 

August 

September 

October. . 
November 
December 



68 
63 
67 

71 
76 
65 

67 
73 
70 

79 

76 

72 



158 
152 
165 

170 
174 
175 

174 
171 
159 

153 
149 
137 



22 
27 
21 

30 
19 
25 

16 
21 

22 

24 
26 

28 



27 
42 
33 

37 
53 
39 

52 
57 
60 

61 
54 
56 



33.3 
33.2 
32.5 

32.4 
31.8 
31.9 

31.9 
31.7 
31.6 

31.6 
31.6 
32.7 



36.5 
34.6 
28.9 

26.4 
33.0 
30.7 

34.1 

29.8 
29.1 

28.9 
28.9 
30.9 



By months : 
1920. 



hs: 

January . . . 
February. . 
March .... 


76 
74 

82 


142 
133 
131 


24 
33 

44 


47 
50 
40 


39.5 
45.4 
50.8 


April 

May 

June 


86 
89 
95 


140 
136 
133 


39 

42 

27 


37 
52 
66 


51.4 
51.7 
55.7 


July 

August .... 
September . 


92 
91 

86 


132 
131 
130 


28 
34 
29 


65 

58 
57 


52.1 
51.4 
50.0 


October. . . 
November . 
December . 


93 
91 
91 


136 
142 
161 


33 
34 
51 


55 
51 
21 


48.6 
46.0 
44.9 



By months: 

1921. January. . 
February . 
March. . . 

April 

May 

June 



86 


184 


38 


25 


38.6 


72 


202 


30 


24 


33.6 


73 


223 


15 


37 


31.1 


76 


250 


23 


26 


29.9 


70 


262 


17 


51 


23.8 


63 


261 


15 


49 


23.8 



32.1 
33.8 
36.4 

33.6 
33.9 
38.5 

38.5 
37.8 
41.4 

40.9 
46.0 
39.5 



44.1 
40.2 
43.5 

35.4 
34.6 
29.8 



* End of period. 



RELATION OF PRODUCTION TO STOCKS 



173 



of lubricating oils is shown in Fig. 80. The outstanding features of 
this chart are: The marked rise in production and exports in 1920; 
the sharp advance in price during the first half of 1920, followed 
by a steady fall the second half; and the declining stocks over 
much of 1919 and 1920. The supporting data for Fig. 80 are given in 
Table 74. 

Relation of Production to Stocks. — The volume of lubricating oils 
produced monthly in the various refinery districts of the country 
during 1919 and 1920, compared with the stocks on hand, is shown 
graphically in Fig. 81. The advance in output of Texas-Louisiana in 
1920 over 1919 attests the growing attention latterly devoted to 
lubricating manufacture on the Gulf Coast. The size of the stocks 
in the East is worthy of especial note, as well as the general tendency 
for the stocks in all sections of the country to increase in the closing 
months of 1920. The data entering into Fig. 81 are given in Table 75. 

No recent figures are available for the country at large showing 
the output of the various types of lubricating oils, nor the relative 
degree to which the stocks of these types have accumulated. Infor- 
mation of this kind would be of the highest value in indicating the 
future course of the lubricating market. Partial information of this 
character is available, however, in the U. S. Census of Manufactures 
and is presented in the table following; 



Table 76. — Production of Lubricating Oils in 1914 and 1919 by Types 
Data from U. S. Census of Manufactures 



Type 


Production 


Value 


Millions of Gallons 


Per Cent of Total 


Cents per Gallon 


1914 


1919 


1914 


1919 


1914 


1919 


Pale or paraffin .... 

Red or neutral 

Cylinder oils 

Others 

Total 


93 
116 
103 
205 


123 
211 
235 
250 


18 
22 
20 
40 


15 
26 
29 
30 


8.7 
10.7 
13.3 
10.7 


22.9 
21.2 
25.1 
25.8 


517 


819 


100 


100 


10.8 


24.0 



The Demand for Lubricating Oils. — The demand for lubricating 
oils during the past five years has not only been increasing in quan- 
tity, but shifting in character. The growth of demand is indicated 
approximately by the country's output of lubricants, since pro- 



174 



LUBRICATING OILS 



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THE DEMAND FOR LUBRICATING OILS 



175 



duction in a general way adjusts itself to demand. The shift in the 
character of demand, however, is of even greater significance and a 
view of this factor is presented in Fig. 82. With the data available 
it has been possible to divide the demand only into its principal com- 

PRODUCTION STOCKS ON HAND 



MILLIONS 

OF 
GALLONS 

30 

20 

10 
Ota 




20 1 
IO 
of 



20, 
IO 

ol 



20 j 
to 



oi 



10 



oO 



2tz:^ n 



1919 



1920 




EAST COAST 



PENN. ETC. 



ILL. - IND. ETC. 



KAN. - OKLA. ETC. 



TEX. - LA. 



WYO. - COLO. ETC. 



1919 



1920 



MILLIONS 

OF 
GALLONS 

70 



1 20 

IO 

I O 



20 
IO 



1 
^20 

IO 

&s o 



1 20 
10 
I o 



Fig. 81. — Production and stocks of lubricating oils in the various refinery districts 
of the United States by months, 1919-1920. 

ponents — exports, railway consumption, industrial consumption, and 
automotive consumption. Such a division, however, is sufficient to 
show that automotive demand has cut sharply across the field, giving 
a new aspect to the situation. Close study of Figs. 82-85 will indicate 
more strikingly than words the relative importance of the various 



170 



LUBRICATING OILS 



demands and the highly significant position attained by the require- 
ments of automotive transportation. 



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SCALE OF 
INCREASE 

OR 
DECREASE 

100?. 

80 





I- 10 

20 
|- 30 

40 

50 $ 



1911 1912 1913 1914 1915 1316 1917 1913 1919 1920 1921 

Fig. 82. — Trend of supply and demand for lubricating oils in the United States, 

1910-1920. 



Exports of Lubricating Oils. — The growth in exports of lubri- 
cants during the past ten years is shown in Fig. 82, while Fig. 85 indi- 



EXPORTS OF LUBRICATING OILS 



177 




1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 



Fie. 83.- 



-Percentage analysis of the demand for 
lubricating oils, 1910-1920. 



cates the size of exports as compared with the domestic consumption. 
Roughly, a third of our lubricating oil is sent abroad. A large pro- 
portion of the world's 100$ 



machinery is lubricated 
by American oil, 411 
million gallons of lubri- 
cating oil being exported 
in 1920 for this purpose. 
As to the grades of oil 
sent abroad, a large pro- 
portion is cylinder stock, 
because the foreign prac- 
tice, especially on the 
Continent, makes use of 
high-pressure, superheat- 
ed steam demanding a 
high-grade, high-test 
cylinder stock. It has 
been stated that prob- 
ably as much as 80 per cent of our cylinder stocks are exported. 
Whether or not this figure is correct, it is evident that a large share of 
our heavy-bodied lubricating oil and the cream of the American 

output goes into foreign 
trade. The bearing of 
this fact upon the do- 
mestic situation, and 



especially upon the 
course of lubricating 
prices is very significant. 
It is evident that the 
industrial rehabilitation 
of Europe is dependent 
upon a steady flow of 
lubricants from this 
country, since cylinder 
stocks are not manu- 
factured from foreign 
crudes in significant 
quantities, nor can new- 
ly developed petroleum 
resources abroad come rapidly into lubricating production. 

The Railroad Demand for Lubricants. — The lubrication require- 
ments of American railroads have been largely met by the products of 




1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 



Fig. 84. — Percentage analysis of the automotive 
consumption of lubricating oils in the United 
States, 1910-1920. 



178 



LUBRICATING OILS 



one company, and this condition still prevails though not to such 
an exclusive degree as was the case ten to fifteen years ago. The 
consumption of lubricating oils by American railways may be roughly 
estimated from data published by the Bureau of Corporations in 
1906, and brought reasonably up to date on the basis of car mileage 
statistics issued by the Bureau of Railway Economics. While not 
exact, the results of this calculation are given in the following table: 

Table 77. — Estimated Consumption of Lubricating Oil by the Rolling 
Stock of the United States Railways 

(Millions of gallons) 



Year 


Valve Oil 


Engine, Coach 
and Car Oil 


Total 


1910 


4.8 


26.0 


30.8 


1911 


5.0 


26.2 


31.2 


1912 


5.0 


26.2 


31.2 


1913 


5.5 


28.7 


34.2 


1914 


5.3 


28.1 


33.4 


1915 


5.2 


27.1 


32.3 


1916 


5.9 


30.6 


36.5 


1917 


5.8 


30.6 


36.4 



It is apparent from this table and from Figs. 82, 83, and 85 that the 
railway consumption has not been increasing significantly and does 
not represent a highly important item in point of size as compared 
with motor oil or industrial lubricant consumption. It may be 
noted further that the bulk of the railway consumption is for the 
lubrication of bearings which does not require a high-grade oil. 

The Industrial Demand for Lubricating Oils. — The quantity of 
lubricating oils consumed in the United States for industrial purposes 
has been approximately determined by subtracting from the total 
production each year the quantity exported and consumed at home by 
railways and automotive transportation. Reference to Figs. 82 and 
85 will indicate that the industrial consumption, while increasing 
notably in 1917 and 1918, has fallen off slightly in 1919 and 1920. 
The industrial demand, however, is intimately connected with the 
industrial growth of the country and will increase in keeping with it, 
although the relative importance of the industrial demand compared 
with the requirements of automotive transportation may be expected 
for a time to decline, as indicated in Fig. 83. 

The character of the industrial demand is changing somewhat, 



THE AUTOMOTIVE DEMAND FOR LUBRICATING OILS 179 

due to the development of finer types of machines, the speedy 
growth of the electrical industry, the rapid development of steam 
turbine practice which is steadily replacing the reciprocating steam- 
engine in large installations, and the rapid upgrowth of the internal 
combustion engine in the stationary field. These changes, which for 
the present cannot be accurately measured, are, nevertheless, strik- 
ingly in a consistent direction, throwing a growing burden on the more 

MILLIONS 

OF 
GALLONS 

1100 ( — 



1000 




L ... . . . L _ 



-~- — ■, ,i i - i_ J a - .. . j ;. , . .'■■ ..-H 

1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 



Fig. 85. — Analysis of the growth in the demand for lubricating oils in the United 

States, 1910-1920. 



highly refined types of lubricating oils and upon the lubricants of 
heavier body. This unmistakable trend is reflected in a growing 
market for viscous neutrals and cylinder stocks, in contrast to non- 
viscous neutrals and especially the paraffin oils and other types made 
incidental to the manufacture of gasoline and kerosene. 

The Automotive Demand for Lubricating Oils. — The phenomenal 
growth of automotive transportation is familiar to all, and the 
requirements of this field have occasioned a rapidly mounting pro- 



180 



LUBRICATING OILS 



duction of motor-oil. The significance of the motor-oil demand may 
be gathered from Figs. 82 and 85 where its striking rate of increase is 
graphically shown. The growth in motor-oil consumption has been 
calculated by multiplying the average number of cars, trucks and 
tractors in use by an appropriate consumption factor. The data are 
given in the following table : 

Table 78. — Automotive Demand for Lubricating Oils 

(000 omitted) 





Average 


Gallons of 


Average 


Gallons of 


Average 


Gallons of 


Total 




Number 


Motor Oil 


Number 


Motor Oil 


Number 


Motor Oil 


Gallons of 


Year 


Passenger 


Consumed 


Trucks 


Consumed 


Tractors 


Consumed 


Motor Oil 




Cars 


Factor: 


in 


Factor: 


in 


Factor: 


Consump- 




in Use 


25 Gallons 


Use 


75 Gallons 


Use 


75 Gallons 


tion 


1910 


460 


11,500 


15 


1,125 


6 


450 


13,075 


1911 


610 


15,250 


27 


2,062 


10 


750 


18,062 


1912 


780 


19,500 


42 


3,150 


15 


1,125 


23,775 


1913 


1060 


26,500 


65 


4,875 


16 


1,200 


32,575 


1914 


1350 


33,750 


108 


8,100 


17 


1,275 


43,125 


1915 


1870 


46,750 


167 


12,525 


20 


1,500 


60,775 


1916 


2700 


67,500 


250 


18,750 


30 


2,250 


88,500 


1917 


3800 


95,000 


360 


27,000 


50 


3,750 


125,750 


1918 


5000 


125,000 


550 


41,250 


90 


6,750 


173,000 


1919 


6000 


150,000 


820 


61,500 


162 


12,150 


223,650 


1920 


7236 


178,000 


990 


74,300 


300 


22,500 


274,800 



The accelerating demand for automotive purposes, which now 
represents about a quarter of the country's total output of lubri- 
cants and approximates the entire domestic industrial demand, is 
having a marked selective influence upon the lubricating market. 
Automotive lubrication requires principally four grades of lubricating 
oil — light, medium, heavy, and extra heavy — with a growing swing 
to the heavier grades brought about by the rapid increase of trucks 
and tractors, together with a growing appreciation of the fact that 
the general practice in the past has been in the direction of oils of 
inferior body. To meet the requirements of automotive transporta- 
tion from lubricating oils manufactured from paraffin-base and mixed- 
base crudes, it has been thought necessary to blend cylinder stocks 
with viscous or non- viscous neutrals to gain the requisite body. 
This procedure placed an unexpected and unprecedented demand 
upon the heavy-bodied oils, namely, the cylinder stocks and especially 
the filtered varieties, with the result that a shortage of such products 
accompanied by a marked advance in their price developed early in 
1920. 



SEASONAL CHARACTER OF AUTOMOTIVE DEMAND 181 

The growing stress falling upon the heavier-bodied motor-oils 
by virtue of the natural trend of automotive growth has been accom- 
panied by a change in character of the fuel consumed. The decreas- 
ing volatility of gasoline caused by the incorporation of a growing 
proportion of heavy ends into the marketed product has given rise to 
a condition in which the lubricating oil in service is subjected to 
dilution, or thinning. This condition has contributed to the neces- 
sity for heavier-bodied oils, and the future would seem to indicate 
that the growing demand for motor-fuel will lead to further dilution 
and therefore swing the general practice in even greater degree 
toward heavier-bodied motor-oils. 



Table 79. — Estimated 1921 Domestic Demand for Motor Oil by Months 



Month 



January .... 
February. . . 
March 

April 

May 

June 

July 

August 

September. . 

October. . . . 
November . . 
December. . 

Total 



Per Cent of 
Year's Total 

Required 
Each Month 



5.4 

5.8 
6.4 

7.2 
8.5 
9.9 

11.2 
11.8 
10.4 

8.8 
7.9 
6.7 



100 



Millio 


ns of 


Gallons Required 


Each Month 


15 


5 


16 


6 


18 


3 


20 


6 


24 


4 


28 


4 


32 


2 


33 


8 


29 


8 


25 


2 


22.7 


19 


2 


286 


7 



Per Cent of 
Year's Total 

Required 
Each Quarter 



17.6 



25.6 



33.4 



23.4 



100 



Seasonal Character of Automotive Demand. — The consumption 
of motor-oil displays a seasonal variation corresponding to the 
increased employment of motor vehicles in the warm months. The 
course of the motor-oil demand throughout the twelve months of 
the year follows closely the variations in gasoline requirements, and 
may be worked out on the same basis as that given on page 128. 
The seasonal curve will vary slightly from year to year according to 
the rate at which the demand is increasing. The estimated 1921 
demand for motor-oil, distributed over the twelve months of the 
year, is shown in Table 79. 



182 LUBRICATING OILS 

The estimate of the total demand is arrived at as follows: 

Millions of 
gallons 

8.5 million cars at 25 gallons discounted 10 per cent 191 

1.1 million trucks at 75 gallons discounted 10 per cent 73 

0.3 million tractors at 75 gallons 23 

287 

The numbers of cars and trucks are determined by averaging the 
registration figures for January 1, 1920, and January 1, 1921, in 
order to get the average number of units employed during the year. 
The normal gallonage is discounted 10 per cent to allow for a de- 
creased utilization probable as a result of the industrial depression. 
The final results, of course, are only approximate, but are perhaps 
of sufficient accuracy to serve a useful purpose. 



CHAPTER XIII 
PETROLEUM BY-PRODUCTS 

The petroleum industry turns out four products of major impor- 
tance — gasoline, kerosene, fuel oil, and lubricating oil, with many 
varieties falling under each head — and a number of additional sub- 
stances which may be termed by-products. The most important of 
these by-products are paraffin wax, asphalt, coke, petrolatum, and 
grease. These products are used in their crude state and also form 
the basis for the manufacture of secondary products, an application 
particularly true of wax and petrolatum. The petroleum industry, 
therefore, affords an example of multiple production, the fabrication 
of expanding series of products from a single raw material. 

The Development of By-products. 1 — Industries, such as the 
petroleum industry, engaged in the extraction of values from raw 
materials, have developed under the influence of demands for one 
or more products, and only under ideal conditions do those demands 
become so balanced as to cause a complete extraction of the values 
present, thus leading to full utilization of the raw material. Usually 
an industry in the early stages of its development produces one or 
more main products, and rejects what is left over as waste. This 
waste is regarded as a necessary accompaniment of production, and 
is discarded in lack of a demand calling for its use. As such indus- 
tries develop, products of value come to be fabricated from the so- 
called waste, the activity then turning out by-products in addition 
to the main products, and less waste. But the development of by- 
products is a slow process, and an imposing loss of potential values 
accrues by this delay. When maturely developed, an industrial 
activity produces main products balanced in respect to demands, 
by-products fully developed to current needs, and no waste. There 
are few activities in the United States that have attained this measure 
of effectiveness. 

In the course of industrial growth, the output of main products is 
under the control of a natural law whereby supply and demand seek 
mutually and automatically to affect a balance against disturbing 

1 For a detailed discussion of the economic role of by-products, see C. G. 
Gilbert and J. E. Pogue, The Energy Resources of the United States, Bull. 
102, vol. 1, U. S. National Museum, pp. 95-97. 

183 



184 



PETROLEUM BY-PRODUCTS 



external factors. The production of waste and by-products, how- 
ever, is under no such control, but is determined by the output 
of main products. Hence the supply of incidental products tends 
always to exceed the demand. Industry itself inclines to bring 
these products into use, but is limited by restrictive circumstances 
common to American economic practice. The industrial activity 
is often too small or poorly organized to make by-product recoveries, 
which usually gain their value from a cumulative effect possible only 
under large-scale operations. If the activity is financially strong and 
efficiently organized, it tends to build up by-products in so far as 
they are end-products that may enter immediately into consumption. 
Small pendent industries may even be added in order to make the 
conversion. 

But if the potential by-products are of the intermediate order, 
requiring outside industries to carry them forward into use, and the 
requisite industrial activities are lacking, inadequate, or too foreign 
in scope to be built up by the parent activity, the whole matter gets 
beyond the reach of industrial stimulus. Such is the case with the 
majority of by-product possibilities. The parent industry can do 
little or nothing; independent activities to handle such materials 
are slow to develop, hampered by the uncertainties of a supply fluc- 
tuating independently of the pressure of their demands, hesitating 
to build at the mercy of conditions beyond their control. 

But apart from these handicaps, where profits are readily attain- 
able from the main products, there is little pressure forcing attention 
to by-product accomplishments. The loss involved in the non- 
development is not felt as such. Under pioneer conditions and in a 
new country richly endowed with opportunities for quantity pro- 
duction, the intricacies of by-product upbuilding are not apt to be 
thoroughly sounded. 

Table 80. — Production of Paraffin Wax in the United States 



Year 


In«Millions of 


In Percentages of 


Pounds 


Production in 1914 


1899* 


256 


67 


1904* 


262 


69 


1909* 


313 


82 


1914* 


380 


100 


1916 f 


386 


101 


1917 f 


481 


127 


1918 f 


505 


133 


1919 f 


467 


123 


1920 1 


541 


142 



* Census of Manufactures 



t U. S. Bureau of Mines 



PARAFFIN WAX 



185 



Such is the case with petroleum. Chemically without equal in 
its by-product possibilities, this substance has been developed with 
prime regard to its main products, and with but the merest beginning 
toward the realization of its by-product values. 



PRODUCTION 



STOCKS ON HAND 



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40 



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EAST COAST 




1919 



1920 



Fig. 86. — Production and stocks of paraffin wax in the various refinery districts 
of the United States by months, 1919-1920. 



Paraffin Wax. — Paraffin wax is produced in large quantities 
because it must be removed in the refining of paraffin crudes from 
which lubricating oils are manufactured. In consequence, large 
supplies of this commodity have tended to accumulate, in spite of 



186 



PETROLEUM BY-PRODUCTS 






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187 



its rather ready application without intricate fabrication to a grow- 
ing variety of uses. 

The production of paraffin wax for the years enjoying a statistical 
record is shown in Table 80. 

The production and stocks of paraffin wax in the various refinery 
districts in the United States are shown graphically by months for 
1919 and 1920 in Fig. 86, with the supporting data given in Table 81. 
It is to be noted that the stocks relative to output are unusually large. 

Asphalt. — Asphalt is mined in its natural condition and extracted 
from crude petroleum of asphaltic base. Native asphalt is obtained 
largely from the famous pitch lake in Trinidad. Petroleum asphalt 
is derived largely from California, Gulf Coast, and Mexican crudes. 

The production and imports of asphalt of various types for the 
United States are given in Table 82. 



Table 82. — Marketed Production and Imports of Asphalt by Years, 

1913-1920 

Data from U. S. Geological Survey 

(In thousands of short tons) 





Produced 


Produced in 


Domestic 


Imports, 
Native 


Year 


from Domestic 


U.S. from Mexican 


Production, 




Petroleum 


Petroleum 


Native* 


1913 


437 


114 


93 


207 


1914 


361 


314 


80 


137 


1915 


665 


388 


76 


135 


1916 


688 


572 


98 


147 


1917 


702 


646 


82 


187 


1918 


605 


598 


60 


115 


1919 


615 


675 


88 


105 


1920 f 


688 


1044 


199 


127 



* Includes related bitumens 
t Estimated. 

The production and stocks of asphalt in the United States by 
months during 1919 and 1920 are shown in Fig. 87, the supporting 
data being given in Table 83. It is apparent that the bulk of the 
asphalt is manufactured on the East Coast (from Mexican petroleum), 
in the Gulf States of Texas and Louisiana, and in California. 

Coke. — Petroleum coke is the residue left from the destructive 
distillation of crude oil. It is used as fuel and for the manufacture of 
electrodes. Its production in the United States by years from 1914 
to 1920 is shown in Table 84. 



188 



PETROLEUM BY-PRODUCTS 



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K* 



PRODUCTION 




ASHPHALT 189 

STOCKS ON HAND 

THOUSANDS 



EAST COAST 



ILL.-IND. etc. 
KAN.-OKLA. etc. 




1919 1920 1919 1920 

Fig. 87. — Production and stocks of petroleum asphalt in the various refinery 

districts of the United States by months, 1919-1920. 

Table 84. — Production of Petroleum Coke in the United States 



Year 


In Thousands 
of Tons 


In Percentages of 

the Production in 

1914 


1914* 
1916f 
1917f 
1918| 
1919f 
1920f 


214 
405 
539 
560 
603 
577 


100 

189 
252 
262 
282 
270 



* Census of Manufactures. 



t U. S. Bureau of Mines. 



190 



PETRI )LEUM BY-PRODUCTS 



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PETROLATUM 



191 



The current trend of the production and stocks of petroleum coke 
by months for 1919 and 1920 is given in Fig. 88, with the supporting 
data in Table 85. 



PRODUCTION 




EAST COAST 



PENN. ETC. 



ILL.- IND. ETC. 



KAN. -OKLA. ETC. 



TEX. - LA. 



WYO. - COLO. ETC. 



STOCKS ON HAND 



1919 



1920 




Fig. 88. — Production and stocks of petroleum coke in the various refinery districts 
of the United States by months, 1919-1920. 



Petrolatum. — Petrolatum, the basis of vaseline and widely used 
in pharmaceutical preparations, is a petroleum product of especial 
interest by virtue of its extensive use in various fabricated forms. It 
is one of the few by-products of petroleum which has substantially 



192 



PETROLEUM BY-PRODUCTS 



measured up to its capabilities. The production of petrolatum for 
a few recent years is shown in Table 86. 

Table 86. — The Production of Petrolatum in the United States 



Year 


Production, 
Millions of Gallons 


Value, 
Millions of Dollars 


1914* 
1919* 
1920 f 


6.07 

10.23 

6.79 


1.24 
3.75 



* Census of Manufactures. 

t U. S. Bureau of Mines. The product reported is not homogeneous with that given above 
for 1914 and 1919. 

Prices of various grades of petrolatum in January, 1921, are 
shown in Table 87. 



Table 87. — Wholesale Prices of Petrolatum, January, 1921 



Grade 


Cents per Gallon 


Snow white 


18 
15 
12 

7 

6 

5.5 

5.25 


Lily white 


Cream petroleum jelly .... 
Amber 


Dark amber 


Veterinary 


Dark green 



Greases. — There are no satisfactory commercial lubricants of 
hydrocarbon or fatty-oil origin that are sufficiently thick and other- 
wise suitable for the lubrication of all types of transmissions; hence 
it has been necessary to find a means of artificially thickening avail- 
able oils to the desired consistency. Various types of greases (thick- 
ened oils) are manufactured to meet this need. 

Greases are saponified fatty oils, of either animal or vegetable 
origin, which are combined with viscous hydrocarbon oils. Most 
trade-marked greases are scented and dyed. Greases are used for 
transmissions, gears, axles, and other types of lubrication requiring a 
highlv viscous product. A characteristic grease is axle-grease; many 
products of this type contain mineral matter, such as mica or graphite. 

The production of greases in the United States for the latest year 
for which figures are available is given in Table 88. 



MEDICINAL OILS 



193 



Table 88. — Production of Greases in the United States in 1914 and 1919 
Data from U. S. Census of Manufactures 



Types 


1914 




1919 


! 


Quantity, 

Thousand 

Gallons 


Value, 

Thousand 

Dollars 


Average 
Price, 
Cents 

Per 
Gallon 


Quantity, 

Thousand 

Gallons 


Value, 

Thousand 

Dollars 


Average 
Price, 
Cents 

Per 
Gallon 


Lubricating greases. 
Axle greases 


4980 
2948 


1625 
668 


32.6 

22.6 


12,599 
5,318 


6044 
2103 


48.0 
39.6 



Medicinal Oils. — Oils with medicinal properties are manufactured 
from petroleum in considerable quantities. Formerly such oils were 
obtained almost entirely from abroad, but the American products 
have almost supplanted the imported varieties. The production of 
medicinal oils in 1919 and 1920 is shown in Table 89. 

Table 89. — Production of Medicinal Petroleum Oils in the United States, 

1919-1920 



1919 
1920 


1,129,932 gallons 
1,375,081 gallons 



The price of various grades of mineral medicinal oils in Jan- 
uary, 1921, is shown in Table 90. 



Table 90. — Price of Heavy White Mineral Medicinal Oil in January, 

1921 



Grade 



Per Gallon 



880-885 specific gravity . . . 
865-870 specific gravity . . . 
850 specific gravity . . . 



$1.75 
1.20 
1.00 



Miscellaneous Products. — The U. S. Bureau of Mines in its 
monthly reports on the refinery output of the United States includes 
a group of miscellaneous products. The composition of this group 
for the years 1919 and 1920 is shown in Table 91. 



194 



PETROLEUM BY-PRODUCTS 



Table 91. — Output of Miscellaneous Petroleum Products in the United 

States, 1919-1920 

Data from U. S. Bureau of Mines 

(In thousands of gallons) 



1919 


1920 


1,685 


1,786 


31,285 


34,710 


1,130 


1,375 


76 


351 


6,421 


6,794 


77,638 


60,789 


158 


177 


14,994 


19,230 


3,766 


5,379 




14 


571,238 


787,685 


474 


242 


40 


6 


379 


837 


19,326 


5,907 


3,545 


4,682 


108,956 


107,901 


376,229 


451,267 


122 


33 


3,017 


3,417 


58,387 





1,278,864 


1,492,584 



Binder 

Flux 

Medicinal oils . . 
Paint products . 
Petrolatum .... 

Road oil 

Roofer's wax . . . 
Sludge products 

Acid oil 

Bottoms 

Distillates 

Pitch 

Residue 

Slops 

Tailings 

Tar 

Tops 

Unfinished 

Wash out 

Wax tailings. . . 
Others 

Total. . . 



The Future of Petroleum By-products. — A considerable range of 
by-products has already been manufactured from a portion of the 
crude petroleum brought into use; but the possibilities in this 
direction are much greater than the attainments and the bulk of 
crude petroleum utilized yields few, if any, by-product values. The 
by-product accomplishments of the more progressive portion of the 
petroleum industry are shown in Fig. 89. 

As crude petroleum advances in price and further attention is 
accorded chemical research, an enlarging by-product return may be 
counted on in the petroleum industry. Petroleum and coal-tar are 
the chief raw materials of synthetic organic chemistry, and the values 
hidden in these two substances, as already so well demonstrated in 
the case of coal-tar, can scarcely be overestimated. 



CHAPTER XIV 
NATURAL GAS AND NATURAL-GAS GASOLINE 1 

Natural gas occurs in intimate association with petroleum and 
independently in gas-pools in the proximity of oil deposits. This 
substance is accordingly commercially produced not only as a by- 
product of petroleum but separately as a distinctive undertaking. 
The bulk of the natural gas consumed in the United States is brought 
into use by large corporations operating as public utilities, but 
quantities- of gas are also disposed of by oil-producing companies. 

The magnitude of natural-gas service in the United States is not 
generally appreciated. Large sections of the country have long 
been partly to wholly dependent upon this ideal fuel. Domestic 
consumers number upward of 2 J million, and billions of cubic feet 
are annually employed for industrial heating and the generation of 
power. The consumption of natural gas in the United States in 1919 
in comparison with the quantity of artificial city-gas used in that 
year is shown in Table 92, 

Table 92. — Consumption op Natural Gas Compared with the Utilization 

of City-gas in the United States in 1919 

Data from U. S. Geological Survey and American Gas Association 

(In millions of M. cubic feet) 



■ 

City gas: 

Carburetted water-gas . 


180 
65 
26 
51 


Coal-gas 


Oil-gas 


Surplus by-product gas * 

Total 

Natural gas 


322 
639 





* Includes some gas made by other processes. 

1 It is impossible to discuss natural gas adequately without drawing upon the 
work if S. S. Wyer, who has done so much to elucidate the natural gas situation. 
For a detailed discussion of this subject, reference may be had to Wyer, Natural 
Gas: Its Production, Source, and Conservation, Bull. 102, Pt. 7, U. S. National 
Musuem, Smithsonian Institution, 1918. 

195 



19G 



NATURAL GAS AND NATURAL-GAS GASOLINE 



Consumption of Natural Gas. — The actual production of natural 
gas in the United States is not known, since billions of cubic feet are 
wasted, used in the field, and otherwise unaccounted for. The quan- 
tity entering into consumption, however, is a matter of statistical 
record and is shown in Table 93 for the period 1915-1919. It will be 
observed that the bulk of the gas is employed for industrial purposes, 
the ratio of domestic consumption to total consumption being 35 
per cent in 1915, 31 per cent in 1916, 32 per cent in 1917, and 38 per 
cent in 1918, 

Table 93. — Consumption of Natural Gas in the United States by Years, 

1915-1919 

Data from U. S. Geological Survey 











Gas Consumed 








No. of 
Pro- 


Number of 
Consumers 


























Domestic 


Industrial 


Total 




ducers, 


















Units 
of 1 


Domestic, 

Units of 

1000 


Indus- 


Volume, 


Average 


Volume, 


Average 


Volume, 


Average 




trial, 


Units of 


Price, 


Units of 


Price, 


Units of 


Price, 






Units of 


1,000,000 


Cents 


1,000,000 


Cents, 


1,000,000 


Cents 






1 


M. 


per M. 


M. 


per M. 


M. 


per M. 


1915 


7205 


2195 


18,358 


217 


28.32 


411 


9.68 


628 


16.12 


1916 


7697 


2362 


18,278 


235 


28.63 


518 


10.21 


753 


15.96 


1917 


7573 


2431 


18,620 


258 


30.76 


537 


11.67 


795 


17.87 


1918 


7101 


2509 


16,581 


271 


31.35 


450 


15.23 


721 


21.29 


1919* 
















639 


25.00 



* Estimated. 



The trend of the consumption of natural gas in the United States 
over the period 1906-1919, divided into its domestic and industrial 
components, is shown in Fig. 90. This chart indicates that the con- 
sumption of natural gas reached its maximum in 1917 and there- 
after has shown a decline at approximately the same rate that char- 
acterized its previous increase. The diagram illustrates the fact, 
already too well known in all natural-gas consuming regions, that 
the annual output of this fuel has passed its maximum, and con- 
sumption is consequently suffering progressive curtailment. This 
outcome carries additional interest in that it presages what will 
inevitable overtake the petroleum resource. In the words of the 
Director of the U. S. Geological Survey: " Natural gas is a mine 
that is largely worked out; it has seen its best days and future 
dividends to the nation cannot equal those of the past." 



CONSUMPTION OF NATURAL GAS 



197 




1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 
Fig. 90. — Trend of the production and value of the natural gas consumed in the 
United States by years, 1906-1919; data from U. S. Geological Survey. 

Table 94. — Acreage Controlled by Natural-gas Producers in the United 

States in 1918 

Data from U. S. Geological Survey 

(In thousands of acres) 





Natural-gas Acreage 


In fee 


1,081 

12,343 

1,154 


Leased 

Gas rights 

Total 


14,578 



About 60 per cent of the total consumption of natural gas is 
utilized in the three states of Pennsylvania, Ohio, and West Virginia, 
where this product has not only given a cheap and convenient domes- 
tic service, but has also exerted a marked effect, now nearing its 



198 



NATURAL GAS AND NATURAL-GAS GASOLINE 



PENNSYLVANIA 



WEST VIRGINIA 



close, upon the industrial opportunity afforded by those sections. 

The relative importance 
□industrial [^domestic of the industrial and do- 

mestic role of natural gas 
in the leading gas-con- 
suming states is shown 
graphically in Fig. 91. 

Production of Natural 
Gas. — The production of 
natural gas, from an en- 
gineering standpoint, is 
quite similar to the pro- 
duction of petroleum, the 
two products in many 
instances being turned 
out jointly from the 
same well, although the 
bulk of the natural gas 
consumed is drawn from 
gas-wells in gas-fields. 
(See Fig. 92.) 

The acreage controlled 
by natural-gas producers 
in the United States in 
1918, is shown in Table 
94. 

The number of gas- 
wells and the extent of 
drilling activity in 1918 
for natural gas com- 
pared with petroleum 
are shown in Table 95. 
A feature especially to 
be noted in Table 95 is 
the fact that in 1918, 
7 per cent of the nat- 
ural-gas wells were aban- 
FlG . 9i -Relation of industrial and domestic con- doned, whereas only 
sumption of natural gas in the United States in 3 per cent of the petro- 
1918. leum wells ceased to be 

productive. The aver- 
age life of natural-gas wells for the entire country is about 8 years; 
the average petroleum well is longer-lived. 




OKLAHOMA 



CALIFORNIA 



21 OTHER STATES 



I I I I I 



20 

FIGURES IN 



I 1 II I 



40 00 80 100% 

RECTANGLES ARE MILLIONS OF M. CU. FT. 



PRODUCTION 



TRANSMISSION 




FlG. 92— HOW NATURAL GAS IS FOUND, REDUCED TO POSSESSION, TRANSMITTED AND DELIVERED TO ULTIMATE CONSUMER. 



PRODUCTION OF NATURAL GAS 



199 



Table 95. — Well Data for Natural Gas and Petroleum in the United 

States in 1918 
Data from U. S. Geological Survey 





Natural Gas 


Petroleum 


Perm. 


Ohio 


W. Va. 


Total U.S. 


Total U. S. 


Productive wells, Jan. 1, 1918. 
Drilled in 1918: 
Gas 


14,534 

1,276 
258 


5979 

614 
297 


9329 

718 
170 


39,283 

3,808 
1,508 


197,149 

12,111* 
3,135 


Dry 


Total 


1,534 

566 
15,244 


911 

425 
6168 


888 

360 

9687 


5,316 

2,722 
40,369 


15,246 

5,885 
203,375 


Abandoned in 1918 

Productive, Dec. 31, 1918. . . 



* Oil-wells. 

The effective production of natural gas, from hundreds of wells 
and widely scattered pools, is inherently a large-scale enterprise, 
involving a continuity of service from the field to the consumer. 
This aspect of the natural-gas industry is illustrated in Fig. 93 by a 
map of the properties, compressing stations and transmission lines of a 
large public-service corporation dealing in this product. The map is 
reproduced from a report by S. S. Wyer. 

Natural gas occurs underground under a natural pressure termed 
its rock-pressure, and as the gas is produced the rock-pressure declines. 
The relationship of pressure to volume is definite, and in general a 
decline in rock-pressure of a given percentage means that the volume 
of gas in the underground reservoir has been reduced in like degree. 
A decline in rock-pressure, however, not only indicates that the 
ultimate supply is being depleted, but it also reduces the delivering 
capacity of the gas-well and thus results in a declining rate of output. 
Ultimately the rock-pressure falls below the point at which the gas 
will flow into the receiving lines and either the well must be aban- 
doned or a compressor must be installed for increasing the pressure 
of the gas. The trend of the average rock-pressure of a pool or a 
field gives a basis for estimating the future life of the deposit. The 
average decline in rock-pressure, based on the performance of some 
2500 wells in nearly all of the productive districts of Pennsylvania 
and New York, is shown in Fig. 94 for the period 1906-1919, with a 
projection ahead. 1 It appears from this chart that from 1906 to 

1 Data from W. Irwin Moyer, The Natural-gas Fields of Eastern United 
States and Their Probable Future Life, Nat. Gas Assoc. America, May, 1920. 



200 



NATURAL GAS AND NATURAL-GAS GASOLINE 



1919 the average rock-pressure in West Virginia declined about 
70 per cent and in Pennsylvania, about 65 per cent; and that at its 




j <Q~ MAP OF 

^T AR |\ R NATURAL GAS PROPERTY 

^\jW PHILADELPHIA COMPANY 

r5f ^~~ \ PENNSYLVANIA and WEST VIRGINIA 

/jUPSHUR J, Asofjor.,.^0 



^ / 

\ / BRAXTON >f 



LEGEND 

• Natural Gas Distributing Plahtt 
O Compressing Station 
^" — *~ Direction Gas ^ionr : 
(rj Gas fi£i.p 



Fig. 93. — Map of natural gas property of the Philadelphia Company in Penn- 
sylvania and West Virginia as of Jan. 1, 1920; after S. S. Wyer. 



past rate of decline the pressure will reach 20 pounds in 1942 for 
West Virginia and 20 pounds in 1948 for Pennsylvania. 

Transmission of Natural Gas. — The transportation of natural gas 
is an important step linking production with utilization. As with 



/.: 



•:■•• 







.- 









•'0 

• 



■n 



. 






, 




K E N T U C 



Fig. 95. — Map showing the towns using natural gas and the main natural-gas t 

piled by the U. S. Geological Survey, Jan. 1, 1918; al 




'X/ 



MAP 

\ * SHOWING 

M NATURAL GAS USING TOWNS 

AND 

NATURAL GAS 
MAIN TRANSMISSION LINES 

BASED ON DATA COMPILED BY 
THE U. S. GEOLOGICAL SURVEY 

WASHINGTON. D.C. 
JAN. 1. 1918 



=srr. 



1 ' ~-%JU^sJ- 1 - 

LEGEND 
NaturalOaa Using Towns 

Nahtml OasMain Thansmission Lines 



jsmission lines in the northeastern part of the United States, based on data coin- 
S. S. Wyer, Bull. 102, pt. 7, Smithsonian Institution. 

To face page 201 



■ : , y 



v. 



■ 



i "w 



j i 






/a j j ^ 



TRANSMISSION OF NATURAL GAS 



201 



petroleum, an extensive system of pipe-lines is employed for this 
purpose. The extent of the transmission system in the great natural- 
gas region of Pennsylvania, Ohio, West Virginia, and adjacent parts 
of New York, Maryland, Kentucky, and Indiana, is indicated by a 
map of this territory showing the towns dependent upon natural gas 



ROCK PRESSURE 

IN POUNDS 

lOOO 




1920 



1950 



1906 1910 

Fig. 94. — Typical rock pressure decline in natural gas fields of Pennsylvania and 
West Virginia, 1906-1919, with trend projected to 1950; data from W. I. 
Moyer, Nat. Gas Assoc, of America. 

and the main transmission lines engaged in its distribution. (See 
Fig. 95.) 

In order to expedite its transmission, the gas is compressed in 
stations along the line. Compression decreases the volume of the 
gas and increases its pressure. Gas is ordinarily raised to pressures 
of 200 to 400 pounds for transmission; and owing to the drop in 
pressure resulting from friction as the gas proceeds, recompression 
in successive stations becomes necessary. The gas travels at enor- 



202 



NATURAL GAS AND NATURAL-GAS GASOLINE 



mous velocities in the mains, exceeding the speed of the fastest trains. 
As the rock-pressures of gas-wells decline, the capacity of the 
compressor station is lowered. A growing compressor installation is 
in consequence called for as the gas-fields age. 

Utilization of Natural Gas.— The utilization of natural-gas is 
profoundly affected by a highly variable load factor which fluctuates 
with the season and also with the time of the day. The load factor 

varies more widely 
with domestic con- 
sumption than with 
industrial consump- 
tion, and natural-gas 
companies attempt to 
equalize the domestic 
load with industrial 
sales. The monthly 
domestic load of a 
typical natural - gas 
company is shown in 
Fig. 96, while the 
hourly load of a day 
in winter is given in 
Fig. 97. 

As in the case of 
artificial gas, the ap- 
pliances employed in 
the utilization of nat- 
ural gas are extremely 
wasteful and little 
advance has been 
made in their efficien- 
cy in the past twenty 
years. The field of 
gas stands to-day in striking contrast to that of electricity, where 
constant effort in perfecting the appliance is responsible for much of 
the remarkable advance in the art that has taken place. With nat- 
ural gas, the lack of progress on this score, attributable in part to the 
prevalence of such low prices for natural gas that the product was 
scarcely worth saving, is responsible for an unduly rapid and pre- 
mature depletion of the resource. 

Price of Natural Gas. — Natural gas possesses a heating-value 
nearly double that of the average grade of city-gas, yet the price of 
natural gas has averaged around one-fifth the price of city-gas on a 



CU. FT. OF GAS 

USED PER MONTH 

3,250,000,000 



3,000,000,000 



2,750,000,000 



2,500,000,000 



2,250,000,000 



2,000,000,000 



1,750,000,000 

1,600,000,000 
1,500,000,000 



1,250,000,000 



1,000,000,000 



750,000,000 



500,000,000 



250,000,000 



000,000,000 



JULY AUG. SEP. OCT. NOV. OEC. JAN. FEB. MAR. APR. MAY JUNE 
MONTHS 

96. — Typical monthly domestic load of a natural 
gas company; after S. S. Wyer. 




Fig 



PRICE OF NATURAL GAS 



203 



volume basis, or one-tenth the price on a B.t.u. basis. This dis- 
crepancy between the price of natural gas and its nearest analogue 
is highly significant; it indicates that natural gas has been exploited 
and sold on an uneconomic basis of opportunism ; that the country 
has paid for its natural-gas service with a portion of the resource 
itself. 



600,000 
500,000 










































I I 
I 




H< 


cc 

UF 
FO 


N9 
LY 

r e 


UM 
DE 
ER 


ER 
MA 
VIC 


3 

ND 

E- 


I 


1 


MUCH OF THE EQUIPMENT MUST BE HELD 
FOR THIS PEAK LOAD AMD WILL BE USED 
NOT MORE THAN 4 HOURS DAILY DURING, 
SAY, 20 OF THE COLDEST DAYS OF THE YEAR, 

THE SMALLNESS OF THIS IS EVIDENT FROM 
THE FOLLOWING: NUMBER OF HOURS IN A 
YEAR IN WHICH THE FIXED CHARGES ARE 
ACCRUING, 24 X 365 = 8760 = 100$ HOURS 
















| 




80=1# 


3 
O 
1400,000 

C£ 
Id 

o. 
O 

UJ 
CO 

W 300,000 



b. 

O 

t 
0200,000 




I 
































































































































/ 














_0/> 
>AK 




11, 


~f 
























100,000 






-A 


VL 


IAC 

OF 


E 


D 
LC 


S 
AD 


















































000 









12 1 23456789 IO 11 12 123456789 10 11 1*2 

NOON 
TIME 

Fig. 97. — Typical hourly natural gas load in winter; after S. S. Wyer. 



A comparison of the prices of several types of gas for a number of 
years is given in Table 96. 

Wastes of Natural Gas.— It is difficult to describe without the use 
of superlatives the inefficient manner in which natural gas has been 
exploited in the United States. " Of all the pieces of extravagance 
of which the American people have been guilty, perhaps their reckless 
and wasteful use of natural gas is the most striking. . . . ,n " The 
history of the natural-gas industry is an appalling record of almost 

x Van Hise, The Conservation of Natural Resources in the United States, 
p. 60. 



204 



NATURAL GAS AND NATURAL-GAS GASOLINE 



Table 96. — Average Price of Natural Gas Compared with Price of 
Various Types of Manufactured City-gas 

{Average -price per M. cubic feet) 





N 


atural Gas 






l 


Year 








Coal-gas 


Oil-gas and 
Water-gas 










Domes! ic 


Industrial 


All 






1915 


$0 . 2832 


$0 . 0968 


$0.1612 


$0.92 


$0.90 


1916 


.2863 


. 1021 


. 1596 






1917 


.3076 


.1787 


.1787 


.89 


.86 


1918 


.3135 


.1523 


.2129 


1.01 


.90 



unbelievable waste. 

-100 — 






FIELD AND 
MAIN LINE LOSS 



lOO BILLION 



DISTRIBUTING 
PLANT LOSS 



INDUSTRIAL 



200 BILLION 2 



The common methods of production, trans- 
mission, and use have 
resulted in wasting 
more gas than has ever 
been utilized." 1 "The 
annual reports of the 
conservation commit- 
tee of the Natural Gas 
Association of America 
are stinging indict- 
ments of a criminal 
system, fostered by 
both the gas com- 
panies and the public, 
that has resulted in 
wasting more gas than 
has ever been util- 
ized." 2 

The losses of nat- 
ural gas arise from ex- 
cessive competition in 
drilling, hasty pro- 
duction, leakage in 
transmission, ineffi- 
cient appliances, im- 
proper utilization, and 
many other causes. 3 
Many of these con- 



200 BILLION -J 

< 
H 

o 



GAS ACTUALLY 
UTILIZED BY lOO BILLION 

INDUSTRIAL & DOMESTIC 
ULTIMATE CONSUMERS 



Fig. 98. — Analysis of the losses involved in the opera- 
tions of a large gas company; after S. S. Wyer. 



1 Use and Conservation of Natural Gas, U. S. Fuel Administration. 

2 S. S. Wyer, Natural Gas: Its Production, Service and Conservation, 

1918, p. 



. U.S. 
National Museum, Bull. 102, Pt. 7, 1918, p. 51. 

3 See Wyer, loc. cit., pp. 52-66, for a detailed account of natural-gas wastes. 



CONSERVATION OF NATURAL GAS 



205 



ditions are subject to correction and the life of the resource 
would be materially lengthened if the matter were accorded con- 
structive economic and engineering treatment. An analysis of the 
operations of a large natural-gas company made by Wyer shows 
that of a total output of 600 billion cubic feet of gas in the course of 
fourteen years of operating history, only 17 per cent was actually 
utilized by the consumer (see Fig. 98). A view of the average waste 
of natural gas by the domestic consumer is given in Fig. 99; it is 



-voo- 



95^- 
90^ 
85^- 
80 z- 

75^ 
70 E^ 
65E- 
60^- 

55 =- 

50 E~ 

45 =- 
40^ 

35 F~ 

30^ 
25^- 

20 Z~ 

15=- 

10r- 

5 ^ 

— 0— 



LEAKAGE IN 
HOUSING PIPING 
AND FIXTURES 



WASTEFUL COMBUSTION CONDITIONS IN 
|(rt) USING GAS AT HIGH PRESSURES AND LONG 

FLAMES FOR COOKING 
(6) BURNING GAS AFTER COOKING IS FINISHED 
(C) BURNING GAS BEFORE FOOD IS READY TO COOK 
\{d) NOT TURNING GAS DOWN AFTER BOILING BEGINS 
](e) IMPROPER MIXTURE ADJUSTMENT 
(/) USELESS RADIATION 
( (7) USING MORE HEAT THAN NEEDED 



HEAT UNITS 
ACTUALLY UTILIZED 



Fig. 99. — Analysis of average home wastes of natural gas; after S. S. Wyer, 
U. S. Bureau of Mines. 



estimated by Wyer that the efficiency of most cooking and heating 
appliances could be trebled and the elimination of all preventable 
wastes in domestic consumption would " add fifteen to twenty years 
to the period that natural gas will be available for domestic use." 1 

Conservation of Natural Gas. — There is critical need for increas- 
ing the service value of the declining supply of natural gas by elim- 
inating preventable losses in its production and transmission, and by 

1 Technical Paper 257, U. S. Bureau of Mines, p. 21. 



206 NATURAL GAS AND NATURAL-GAS GASOLINE 

increasing the efficiency of its utilization. As pointed out by Wyer: 1 

" The natural-pis industry is in a transition stage, going from the 
large volume and low-priced basis of the past to the small volume and 
inevitable higher price of the future. Strong individualism domi- 
nated the past. Public policy will ultimately require that legalized 
and regulated collective co-operation, rather than cut-throat compe- 
tition, dominate the future. The greatest need of the industry 
to-day is the adequate recognition of the dominating factors in the 
natural-gas problem, which are: 

1. Mandatory pooling of field operations coupled with an 

adequate market price. 

2. Education of the natural-gas producers, and of the public, 

coupled with national constructive legislation." 

Other more specific measures advocated by Wyer 2 include : 
Removal of all gasoline suspended in the gas; the intensive and 
extensive use of compressors in order to extract a larger percentage 
of the gas from the ground; careful measurement of the gas produced, 
in the field, into and out of transmission lines, and into distributing 
plants, in order to have a constant check on the leakage; attention 
to the disintegrating acticn of stray electric currents, upon the gas 
mains; development of lower distributing pressures; more efficient 
utilization, through proper adjustment of old appliances and con- 
struction of more efficient appliances; and the placement of nat- 
ural gas upon a price-level adequate to insure efficient develop- 
ment, discourage improper industrial consumption, and in general 
render this product worth saving. 

The steps likely to be taken from now on toward insuring a fuller 
utilization of natural gas than has characterized the past will carry 
additional interest as forecasting the measures that may later come 
to be applied to petroleum. 

Carbon Black from Natural Gas. 3 Carbon black is an amorphous 
form of soft carbon made by the incomplete combustion of natural 
gas. Fifty-two million pounds were produced in the United States 
in 1919, having an average value of 7.3 cents a pound. In its manu- 
facture, 50 billion cubic feet of natural gas was used, nearly 8 per cent 
of the country's entire consumption of natural gas in that year, and 
the yield was approximately 1 pound of carbon black from each 
M cubic feet of gas. The carbon black industry establishes itself 

1 U. S. National Museum, Bull. 102, Pt. 7, 1918, pp. 62-63. 

2 Present and Prospective Supply of Natural Gas Available in Pennsylvania, 
1918, pp. 68-69. 

3 See E. G. Sievers, Carbon Black Produced from Natural Gas in the United 
States in 1919, U. S. Geological Survey, May, 1921. 



GASOLINE FROM NATURAL GAS 



207 



in the vicinity of cheap natural gas. The distribution of the industry- 
is shown in Table 97. 

Table 97. — Production of Carbon Black in the United States in 1919, 

by States 

Data from U. S. Geological Survey 



States 


No. 

of 

Plants 


Carbon Black 
Produced 


Natural Gas 
Consumed 


Millions 

of 
Pounds 


Average 
Price, 
Cents 

per 
Pound 


Millions 

of M. 

Cubic Feet 


Average 
Yield per 

M. 
Cubic Feet, 
in Pounds 


West Virginia 

Louisiana 


23 

7 
2 
2 

2 


29.9 
14.0 
4.87 
2.92 
0.32 


7.8 
6.6 
4.7 
8.3 
15.0 


23.1 
20.3 
4.31 
1.95 
0.23 


1.3 
0.7 
1.1 
1.4 
1.3 


Wyoming, Montana .... 
Oklahoma, Kentucky. . . 
Pennsylvania 

Total 


36 


52.1 


7.3 


49.9 


1.04 





About 45 per cent of the output is used in the rubber industry 
as a tire filler; 25 per cent is employed in the manufacture of printing 
ink adapted to fast press work; 17 per cent is exported; and 10 per 
cent is used in making stove polish. From the point of view of 
conservation, the manufacture of carbon black is a constructive 
enterprise only where the gas, already under production, enjoys no 
domestic or industrial market. Vast quantities of natural gas have 
been improperly utilized in the manufacture of this product. 

Gasoline from Natural Gas. 1 — Natural gas consists of a mechan- 
ical mixture of permanent gases and condensable vapors; the con- 
densable constituents are water vapor and gasoline vapor. The 
gasoline vapor may be condensed and recovered in liquid form, and 
in recent years natural gas has become a substantial source of com- 
mercial gasoline. Natural gas from gas-wells is leaner in gasoline 
vapor than the gas produced from oil-wells; natural gas lean in 
gasoline vapor is termed dry gas, while a product richer in gasoline 
vapor is called wet gas. 2 The natural gas that flows from oil-wells 
coming out between the casing and the tubing is frequently termed 

1 For detailed statistical data on this subject, see E. G. Sievers, Natural-gas 
Gasoline in 1919, U. S. Geological Survey, 1921. 

2 These terms have reference also to the content of water vapor. 



208 



NATURAL CAS AND NATURAL-GAS GASOLINE 



casing-head gas, and the gasoline made from this gas is called casing- 
head gasoline. In the Mid-Continent region, the industry manu- 
facturing gasoline from natural gas is spoken of as the casing-head 
gasoline industry, a name changed by the trade in 1921 to the nat- 
ural gasoline industry. 

The growth in output of natural-gas gasoline in the United States 
has been notably rapid, as shown in Fig. 100. It will be observed 
that the output of this type of gasoline is rapidly approaching a lim- 
iting factor, the total quantity of natural gas consumed; and that 
the yield per unit of natural gas treated is declining, as indicated by 
the crossing of curves B and C in Fig. 100. Statistical data showing 
the growth of the natural-gas gasoline industry are presented in 
Table 98. 



Table 98. — Growth of the Natural-gas Gasoline Industry in the United 

States 







Data from II. S. Geological Survey 






Gasoline 
Produced 


Total 
Gasoline 
Produced 


Natural 
Gas 


Average 
Gasoline 
Yield per 
M. Cubic 
Feet Gas, 
Gallons 


Number 


Daily 

Capacity 

of 

Plants, 

Thousands 

of Gallons 


Year 


in 

United States 

Millions of 

Gallons 


from 

Natural Gas, 

Millions of 

Gallons 


Treated, 

Millions of M. 

Cubic Feet 


of 
Plants 


1911 




7.43 


2.48 


3.00 


176 


37.1 


1912 




12.1 


4.68 


2.6 


250 


61.3 


1913 




24.1 


9.89 


2.43 


341 


152 


1914 




42.7 


16.9 


2.43 


386 


179 


1915 




65.3 


24.1 


2.57 


414 


232 


1916 


2059 


103 


209 


0.496 


596 


495 


1917 


2851 


218 


429 


0.508 


886 


902 


1918 


3570 


283 


449 


0.63 


1004 


1022* 


1919 


3958 


352 


480 


0.74 


1191 





* Estimated. 

The marked increase in output that characterized 1916 should not 
escape attention. This sudden expansion came as a result of the 
recovery of the gasoline market from the depressing effect of the 
Cushing overproduction. 

Gasoline is recovered from natural gas chiefly by two methods, 
the compression method and the absorption method. Before 1916, 
the output was obtained almost exclusively by the compression 
method from wet gas flowing from oil wells. From 1916 on, the 
absorption method has come into growing importance, extending 
the commercial extraction of gasoline to the so-called dry gas, too 



GASOLINE FROM NATURAL GAS 



209 



lean in gasoline content to warrant treatment by compression meth- 
ods. The relative contributions made by the two processes for the 
period 1916-1919 are shown in Table 99. 



900 
ROO 






















1 


























.CM 


T-) 








700 
600 




















o*^ 
























p.L GA 


\ (N» 


Luoj*s 


>^r 












500 
400 






r\\ 


^p-f' 


M OF 


pro£ 




















*•" 


OTAL 


c^i> 














































/ 




S 




























/, 










ioo 

90 
80 
70 
60 

50 
40 

30 

io 

9 
8 

7 
6 
5 

4 
3 

2 






















/ 




























/// 




























































/i 




























4 






















i. NAT 


URAL- 


3AS G 


VSOLI!* 


«/ 


J 




















PRC 
OF 


DUCEl 
3ALLO 


) (MIL 


.IONS 


/ 


/ 






























/c. 




























/ 


/VOLII 

TREP 

, EXTF 

^GAS( 


ME O 
TED F 
ACTIO 
LINE 
. CU. 


GAS 
OR 
N OF 
MILLI 


)NS 
















/ 




/ 


/ 






















// 


1 




























// 






























' 






























































/ 











































































































































|+100# 



1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 192.1 
Fig. 100. — Trend of the production of natural-gas gasoline in the United States 
compared with consumption of natural gas, by years, 1911-1919; data from 
U. S. Geological Survey. 

In 1919 over half of the natural-gas gasoline was produced in 
Oklahoma; West Virginia, California, and Pennsylvania ranking 
next in order. The relative importance of the various states as 
contributors during the period 1911-1918 is shown in Fig. 101. 



210 



NATURAL GAS AND NATURAL-GAS GASOLINE 



Table 99. — Output of Natural-gas Gasoline in the United States, 

1916-1919, by Methods of Production 

Data from U. S. Geological Survey 





By Compression * 


By Absorption 


Year 




Gasoline 


Gas 


Average 




Gasoline 


Gas 


Average 


No. 


Produced, 


Treated, 


Yield per 


No. 


Produced, 


Treated, 


Yield per 




of 


Millions 


Millions 


M. Cubic 


of 


Millions 


Millions 


M. Cubic 




Plants 


of 


of M. 


Feet Gas, 


Plants 


of 


of M. 


Feet Gas, 






Gallons 


Cubic Feet 


Gallons 




Gallons 


Cubic Feet 


Gallons 


1916 


550 


85 


36.7 




46 


18.6 


172 




1917 


784 


169 


79.5 


2.123 


102 


49.0 


350 


0.140 


1918 


865 


220 


99.9 


2.20 


139 


62.8 


349 


0.18 


1919 


1025 


261 


117.7 


2.21 


166 


90.4 


375 


0.24 



* Includes some production by vacuum pumps. 

The average price per gallon for natural-gas gasoline for a number 
of selected states and the country as a whole is given in Table 100. 



Table 100.- 



-Average Price of Natural-gas Gasoline in the United States, 
1911-1919 
Data from U. S. Geological Survey 
{In cents per gallon) 



Year 


Oklahoma 


West Virginia 


California 


Pennsylvania 


Whole Country 


1911 


5.40 


7.18 




7.47 


7.16 


1912 


6.3 


9.6 


10.8 


10.6 


9.6 


1913 


8.94 


10.54 


10.87 


11.01 


10.22 


1914 


6.44 


7.45 


8.36 


7.79 


7.28 


1915 


7.46 


8.54 


7.60 


9.66 


7.88 


1916 


12.13 


16.12 


13.37 


17.77 


13.85 


1917 


18.71 


19.93 


15.40 


20.01 


18.45 


1918 


17.3 


19.9 


15.5 


20.6 


17.8 


1919 


17.1 


23.3 


14.2 


21.7 


18.2 



Natural-gas gasoline is a highly volatile product, with a rela- 
tively low initial point and end-point. It vaporizes too readily to 
be used in its raw condition and, having the capacity to contribute 
to less volatile petroleum distillates the qualities requisite in motor- 
fuel, it is employed for blending with kerosene, naphtha, or straight- 
run gasoline of relatively high end-point. This product, therefore, 
is responsible for the output of somet hing like twice the quantity of 
commercial gasoline represented by its own volume. By virtue of 
its low-boiling constituents, natural-gas gasoline contributes volatile 



GASOLINE FROM NATURAL GAS 



211 



components that permit easier starting of the engine and give greater 
operating flexibility when properly blended. In times of strong 
demand, however, natural-gas gasoline is frequently employed 



PERCENTAGE OF OUTPUT 

20 40 60 



30 



WEST VIRGINIA 


IKIIIIIIIIIIIIIIIIIIIII! Itlll 




3 


OHIO 
PENNSYLVANIA 


llllllllll [Ill IH.^3 






20 


OKLAHOMA 


■ 5 






ci 


OTHERS 


33 








WEST VIRGINIA 




1144 




1 


PENNSYLVANIA 
OHIO 


VZ&ZAM 




IIIIIIIHIIIIIII14 




OKLAHOMA 


■■■ 1 i 








CALIFORNIA 


sm9 








ro' 


OTHERS 


33 










WEST VIRGINIA 

OKLAHOMA 

PENNSYLVANIA 




Willi 32 










■127 


f?/Z/Z^ 


CALIFORNIA 
OHIO 


mmm\A, 








Gi 


MMl9 


OTHERS 


33 










OKLAHOMA 
WEST VIRGINIA 
CALIFORNIA 
PENNSYLVANIA 




121 
8 


40 




(O 






11 


VZ/Z " 


OHIO 


■ 6 








■f- 


ILLINOIS 


|3 










OTHERS 


]1 










OKLAHOMA 
CALIFORNIA 




20 








»» 


WEST VIRGINIA 


minium i ' 








PENNSYLVANIA 


VZA 








<0 


OHIO 


13 








Ul 


ILLINOIS 


g2 










OTHERS 


]1 










OKLAHOMA 
WEST VIRGINIA 
CALIFORNIA 
PENNSYLVANIA 










© 


U llllllllll 


8 

r 


"11 


55a 




OHIO 


113 








o 


ILLINOIS 


12 








LOUISIANA 


12 










OTHERS 


]2 










OKLAHOMA 
WEST VIRGINIA 


11111111015 










CALIFORNIA 
PENNSYLVANIA 


^w:)ia 










zae 


TEXAS 


13 








CO 


OHIO 


13 








VJ 


LOUISIANA 


|2 










ILLINOIS 


12 










OTHERS 


13 










OKLAHOMA 
WEST VIRGINIA 








ia 




CALIFORNIA 


^^■(11 










PENNSYLVANIA 


S236 










TEXAS 


13 








© 


LOUISIANA 


13 








CO 


OHIO 


32 










ILLINOIS 


12 










OTHERS 


12 











Fig. 101. — Rank of states producing natural-gas gasoline, 1911-1918, in per- 
centages of each year's output; after E. G. Sievers, U. S. Geological Survey. 

blended with heavy distillates with less satisfactory results. The 
development of natural-gas gasoline has encouraged the upward 
trend in the end-point of commercial gasoline and hence exerted a 
far-reaching effect upon the supply of motor-fuel. fcfc -. 



CHAPTER XV 
MARKETING OF PETROLEUM PRODUCTS 

An outstanding characteristic of the petroleum industry is the 
high degree of proficiency attained in the distribution and market- 
ing of its products. The crude oil is carried by pipe-line or tank- 
steamer to refineries in proximity to demand, whence the refined 
products are distributed in tank-cars to the consuming centers and 
from there in tank wagons to the points of consumption. This vast 
and extensive machinery of distribution is for the most part operated 
by the industry itself as an integral part of its manufacturing activ- 
ities. 

The petroleum interests have paid unremitting attention to the 
means for extending the markets for petroleum products. The 
incentive for this attention has been ever present in the form of a 
production of crude oil that grew more rapidly than the normal 
industrial development of the country. A lavish supply of petro- 
leum was continuously forthcoming under the impetus of the highly 
competitive, individualistic methods of production in vogue, and 
exerted a constant pressure in the direction of forcing an adequate 
outlet for the products involved. In consequence, the efforts to 
adapt this raw material to industrial and social needs came to be 
highly organized, while the production of the raw material itself 
found sufficient stimulus in the undirected energy of the wild- 
catter and the ready productivity of the resource. To-day, there- 
fore, we find the marketing of oil, with its preparatory steps of 
transportation and refining, to be a closely integrated enterprise, 
handling tremendous volumes of products, through diverging and 
ramifying channels of distribution of a unique and singularly effi- 
cient character. 

In contrast to the oil industry, which has thus far focussed its 
main efforts upon the distribution of its products, with efficiency 
in production under neglect, stands the automotive industry. This 
great activity came upon the scene with a large potential demand 
ready to be filled; the problem here was not marketing, but pro- 
duction. In consequence, the automotive industry developed with 
every effort bent upon quantity production, in an attempt to satu- 

212 



DEVELOPMENT OF OIL MARKETING 213 

rate the demand with the greatest possible dispatch; the matter of 
placing the product was relatively simple. Accordingly the auto- 
motive industry stands to-day as an activity whose effectiveness in 
production is carried to a high degree of attainment, with market- 
ing a wholly subordinate issue; while the oil industry enjoys an 
effectiveness in marketing that is scarcely to be found elsewhere 
in the entire industrial field with production disorganized and 
wasteful. 

The contrast is significant. The automotive void is rapidly 
becoming filled; while the demands for the products of petroleum 
have been encouraged to an insistence that cannot continue to be fully 
met from the resources in sight. The relative focus of the two indus- 
tries may soon be expected to change. The automotive industry, 
with little further advance possible in production efficiency, will turn 
its attention to marketing its product against a gathering sales 
resistance; while the oil industry from now on will find its chief 
problem in gaining efficiency in production in order to more ade- 
quately meet the demands which will mount apace without direct 
attention. 

Development of Oil-marketing. — In order to gain a proper per- 
spective of the developments in the marketing of mineral oils, it is 
necessary to review briefly the recent history of the industry. We 
have already noted that the production of crude petroleum has grown 
mainly on the basis of individual enterprise in the drilling and 
operation of wells under highly competitive conditions, while the 
activities having to do with transportation, refining and marketing 
have tended toward integration under the direction of large-unit, 
corporate enterprise. 

At the end of the first decade of the present century, a minor part 
of the output of petroleum products came from a large number of 
independent companies, and the remainder from the Standard Oil 
Company of New Jersey, which operated throughout the United 
States as a single unit and under the supervision of one executive. 1 
The marketing of petroleum products was then carried on by the 
Standard Oil Company, by the Independent Companies affiliated 
with refining, and by oil jobbers who bought directly from the inde- 
pendent refiners. 

In 1911, after long and sensational litigation, the Standard Oil 
Company of New Jersey was dissolved by judgment of the Supreme 
Court, and the original organization broken up into thirty-three 

1 For a detailed discussion of marketing practices, consult A. G. McGuire, 
Prices and Marketing Practices Covering the Distribution of Gasoline and 
Kerosene throughout the United States, U. S. Fuel Administration, 1919. 



214 MARKETING OF PETROLEUM PRODUCTS 

separate and independent units, occupying territories with geographic 
lather than commercial boundaries and requiring for each unit a 
separate and independent administration. 

The result of the dissolution decree upon the marketing of petro- 
leum products is described as follows by the U. S. Fuel Administra- 
tion: 

One of the immediate and permanent results of the application of 
this principle was to limit the interest of the executives of the new 
commercial entities to market values in the territory in which they 
operated. The factor which had worked to exert national rather 
than sectional influence upon the trend of the markets and to estab- 
lish a general level of prices for petroleum products, subject only to 
transportation and similar normal variations, had been wiped out of 
existence. The fragments which had formerly constituted the Stand- 
ard Oil Co. (New Jersey) were then found, in their new corporate form, 
to be unable separately to perform the service to the public which 
had been accomplished by the complete organization. Many of the 
units were without the equipment both to manufacture and distrib- 
ute petroleum products in the territory in which they operated at 
the time of the court decree. Some of them, formerly merely 
marketing subsidiaries of the original corporation, were now faced 
with the necessity of finding new sources of supply. The corollary 
to this was that those units which in the general scheme had been 
devoted principally to the refining of oil found that new markets for 
their output were the first essential to their existence. 

It is no reflection upon the high purpose and public zeal which 
brought about the attempt at Government control to say that experi- 
ence has shown that action to be an economic mistake and that the 
new order which it established accentuated rather than retarded the 
conditions which it was designed to correct. This development has 
not been the outcome of lax or unintelligent enforcement of the dis- 
solution order, for the weight of evidence accumulated as the result 
of keen and almost constant surveillance by several departments of 
the Government is entirely in support of the conclusion that the dis- 
solution decree has been scrupulously observed. 

The separate units do not compete, but, in general, limit their 
activities to the territory in which they were operating at the time of 
the decree in the Standard Oil case. The active competition of two 
or more of them for business in the same territory would have much 
the same effect on outside competitors as a combination between 
them to suppress competition, and might well create the suspicion 
that this was the purpose. By not invading each other's territory 
they perhaps follow the only practical course to avoid charges of 
collusion and of attempts to evade the decree in the dissolution suit. 
These units trade with each other in conformity with the law, but 
after eight years the dissolution decree has been found neither to 
have destroyed nor lessened the influence of the so-called Standard 
Oil companies in their respective territory. It has simply proved 
that legislation can not change the operation of economic laws. 

The admitted efficiency which characterized the original corpora- 



MARKETING OF GASOLINE 215 

tion was not removed by the dissolution decree and is still in evidence 
in the detached organizations. The advantage of large cash reserves, 
the possession of strategic commercial locations, the experience 
gained from acquaintance with the industry virtually since its incep- 
tion, have all contributed to maintain the position of this particular 
group and to continue its influence upon markets and prices. After 
eight years of operation under the dissolution decree, the premier 
position and influence of the Standard Oil group remains unques- 
tioned. The present situation conclusively demonstrates that legis- 
lation can not change the working out of fundamental economic 
principles. 

Marketing of Gasoline. — Gasoline is marketed by the so-called 
Standard Companies, by the Independents, and by jobbers. 1 
Roughly two-thirds of the gasoline distributed in the United States 
is marketed by the Standard Companies which purchase part of this 
quantity from the independent refiners, since the former group 
refines only about one-half of the oil run to stills in this country. 

The Standard group has developed a highly perfected system of 
distribution involving the direct placement of the product in the 
hands of the consumer through the medium of service stations, 
tank-wagon delivery, and tank-stations in sparsely settled districts. 
Every step in the movement of the product from the refinery to 
the ultimate consumer has been worked out with the utmost regard 
to economy and efficiency, and the distribution of gasoline stands 
almost without a rival in the commercial field. 

The large independent refineries market much of their gasoline 
through service stations and tank-wagon delivery; but, as the de- 
velopment of the requisite marketing organization and equipment 
is a large-scale enterprise demanding extensive investment, the smaller 
independents, as well as the larger ones in part, sell their product to 
the Standard Companies, and to jobbing organizations operating 
independently in localized territories. The jobber, indeed, is some- 
what complementary to the small skimming plant; and hence job- 
bing is most active in the Middle West, where the products of the 
small refinery are available in greatest abundance. 

Before the Standard Oil combination was dissolved in 1911, the 
whole area of the United States was divided among its eleven mar- 
keting companies, and each one operated almost exclusively in its 
assigned field. After the dissolution, the existing marketing arrange- 
ments by which there was this division of territory remained undis- 
turbed, and accordingly the various Standard companies to-day 

1 It is common practice in the trade to designate the companies formerly 
combined in the Standard Oil Company of New Jersey as the Standard group, 
and all other companies as the Independents. 



216 MARKETING OF PETROLEUM PRODUCTS 

operate separately in the original territories without substantial 
change. The location and extent of these marketing territories are 
shown in Fig. 102. The Standard companies take the lead in deter- 
mining the sale price of gasoline by announcing the price at which 
this product may be purchased from the tank-wagon. The retail 
price at service stations is usually 2 cents higher than the tank-wagon 
price. The other marketing companies and the jobbers in any 
given territory usually adjust their prices in accordance with the 
tank-wagon price as determined by the Standard companies. The 
tank-wagon price, in turn, tends to fluctuate in sympathy with the 
price of crude petroleum and with the price of the products made 
jointly with gasoline from this raw material. " Price initiative to-day 
seems to be left generally to the Standard companies and competition 
is apparently more directed to developing facilities for getting busi- 
ness than to seeking to obtain it by underselling." 1 

Occasionally, where there is an abundant supply of gasoline, the 
independent marketers and jobbers in a given locality may begin 
to sell under the prevailing tank-wagon price. Usually, in such 
instances, a price-cutting war develops, and the price of gasoline 
is forced down below a profitable level. Of late years, the jobbing 
interests have sought to avoid the precipitation of this type of cut- 
throat competition, but a revival in the tendency was apparent in 
1921. 

Mainly as a result of the dissolution of the original Standard Oil 
Company into separate activities, occupying distinctive and non- 
overlapping territories, the gasoline market has in some degree 
become sectionalized, with minor divergences and inconsistencies 
in marketing practices and price from locality to locality. It thus 
comes about that two adjacent points on opposite sides of a state 
line may see a difference of as much as 2 or more cents in the price 
of gasoline. For example on January 1, 1921, the tank-wagon 
price of gasoline in New York, served by the Standard Oil Company 
of New York, was 31 cents; whereas the tank-wagon price of gaso- 
line in Newark, N. J., served by the Standard Oil Company of New 
Jersey was 28.5 cents a gallon. This sort of divergence in price 
has given rise to much misunderstanding and criticism, but could 
scarcely be altogether avoided under the circumstances surrounding 
the marketing of this product without an undue duplication of 
marketing agencies. 

The division of territory amongst the companies of the Standard 
group has also given rise to divergencies in marketing practice in dif- 

1 The Advance in Price of Petroleum Products, Federal Trade Commission, 
Washington, 1920, p. 53. 



MARKETING OF GASOLINE 



217 




218 



MARKETING OF PETROLEUM PRODUCTS 



Table 101. 



■Marketing Practice of the Standard Oil Companies in 
Various States in 1918 



(After A. (5. Maguire, U. S. Fuel Administration) 



Name of Standard 

Oil Co. 


( Operating in — 


Retail 
Service 

Stations 


Price 


Remarks 


Standard Oil Co 


of 


New York, Connec- 


None. . . 


Single 




New York 




ticut, Massachu- 
setts, Vermont, 
New Hampshire, 
Rhode Island, and 
Maine 








Atlantic Refining 


Co. 


Pennsylvania and 


Many . . 


10 per cent off retail 


Also 10 per cent off 






Delaware 




for resale 


retail for large 
consumers taking 
direct from tank- 
wagon 


Standard Oil 


Co. 


Maryland, Virginia, 


None. . . 


Wholesale price for 




(New Jersey) 




West Virginia, 
District of Colum- 
bia, North Caro- 
lina, and South 
Carolina 




resale 1 cent per 
gallon extra to the 
consumer 




Do 




New Jersey 


..do.... 


Single 


One pi ice in New 












Jersey on account 












of State law 


Standard Oil Co 
Ohio 


of 


Ohio 


Great 

many 


Resale 1 cent under 
retail price. Other- 














wise retail price 












applies 




Standard Oil Co 


of 


Kentucky, Missis- 


Few. . . . 


General tank-wagon 


Service stations 


Kentucky 




sippi, Alabama, 




price 2 cents off for 


sell gasoline at 






Florida, and 




resale 


tank-wagon price 






Georgia 








Standard Oil Co. 


of 


Louisiana, Arkan- 


Many. . 


Single 




Louisiana 




sas, and Tennessee 








Magnolia Petroleum 


Texas, Oklahoma, 


..do.... 


Resale 2 cents under 




Co. 




and Arkansas 




tank-wagon price 




Standard Oil Co. 


of 


Illinois, Indiana, 


Great 


Single 




Indiana 




Michigan, Wiscon- 
sin, Missouri, Iowa, 
Minnesota, North 
Dakota, South Da- 
kota, Kansas and 
few stations in 
( Oklahoma 


number 






Standard Oil Co. 


of 


Nebraska 


Few 


.... do 




Nebraska 












Continental Oil Co. . 


Colorado, Utah, 


..do.... 


Wholesale except at 








New Mexico, 




service stations 








Wyoming, Mon- 




where 2 cents extra 








tana, and Idaho 




charged 




Standard Oil Co. 


of 


California, Arizona, 


Many. . 


2 cents less when for 




California 




Nevada, Oregon, 

and Washington 




resale 





MARKETING OF KEROSENE 219 

ferent parts of the country, as shown in Table 101, reflecting the 
conditions prevailing in 1918, which have not changed substantially 
since that time. 

Marketing of Kerosene. — Kerosene is marketed in much the 
same manner as gasoline; only the service station is unimportant, 
and the major part is distributed to the consumer through the agency 
of the tank-wagon and tank-station; considerable use is also made 
of the retail store. The price of kerosene is usually determined in 
the same manner as the price of gasoline; the tank-wagon price 
charged by the Standard companies being followed by the other 
marketers. There is a systematic differential between the price of 
the two products, and the two prices tend to fluctuate in unison. 
Of recent years, however, the differential has been narrowing since 
the price of kerosene has advanced the more rapidly of the two. 

The export trade in kerosene is large and the marketing of kero- 
sene abroad has received careful attention. To-day American kero- 
sene reaches literally to the four corners of the globe, since markets 
nearer at hand were inadequate to afford outlet to the supply of 
this commodity. The five-gallon kerosene can is a familiar object 
in the most out-of-the-way regions. 

Marketing of Fuel Oil. — The distribution of fuel oil is entirely 
different from that of gasoline or kerosene. Consumed in bulk by 
industrial establishments, railroads, and steamships, its placement 
does not require the attenuated distribution demanded by gasoline 
and kerosene. It is sold for the most part under direct consignment 
from the refinery to the consumer and much of the supply is con- 
tracted for in advance. Its market price in the past has tended to 
fluctuate widely under varying conditions of supply and demand, 
especially as a result of the tendency of crude petroleum to display a 
periodic acceleration in advance of demand, and consequently the 
need for anticipating conditions has been particularly important in 
order to secure advantageous disposition. 

The storage capacity demanded by fuel oil has rendered the 
matter of marketing especially difficult for the small refiner, who 
must keep this product continuously on the move to make room 
for the new output. In consequence, the small refiner is unable to 
maneuver with the purpose of taking advantage of market condi- 
tions. On the contrary, it frequently happens that an appearance 
of oversupply is created entirely fortuitously by a coincidence of 
accumulating storage in adjacent refineries, to the entire demoraliza- 
tion of the local market. 

Marketing of Lubricating Oils. — Lubricants present a third type 
of problem in marketing. These products are highly fabricated into 



220 MARKETING OF PETROLEUM PRODUCTS 

a diversity of types to meet a wide range of specialized demands. 
They are not bulk products in the sense that gasoline or fuel oil are, 
but require individual treatment in their placement into use. 

The motor-oils, which now constitute a substantial portion of 
the entire output of lubricants, are in part handled like gasoline 
through service stations and by tank-wagons to garages and 
stores. 

Lubricating oils designed for industrial service are usually sold 
directly on contract to the industrial establishments. The selling of 
such oils customarily involves an engineering service to fit the oil to 
the functions it is designed to perform. Lubricating sales are conse- 
quently often handled by an engineering, or semi-engineering, staff; 
some companies employ lubricating engineers who work in conjunc- 
tion with the salesmen. 

A considerable volume of lubricating oils is handled by jobbing 
interests, some of whom buy the base oils and compound them into 
special grades bearing the jobber's name. This tendency, together 
with the competition prevailing amongst the refiners, has resulted 
in a confusing multiplicity of brands and an extensive range of adver- 
tising and other specialized sales effort. 

Inspection Laws. — In the early days of oil-marketing, the various 
states passed oil inspection laws with direct reference to the flash 
point of kerosene, in order to safeguard the users of this product from 
explosions. Very little attention was devoted to gasoline beyond a 
requirement that it should be retailed in marked containers and 
labeled " dangerous." With the growth of automotive transporta- 
tion, however, the conditions of a few years ago have been reversed 
and there is no tendency for any gasoline to be left in the kerosene 
to lower its flash point; hence the basis of the kerosene inspection 
laws is obsolete. 

A number of states and a few cities have tried to regulate the qual- 
ity of gasoline, but most of such requirements are unreasonable and 
unscientific, and their enforcement would materially reduce the out- 
put of gasoline. "Most of the laws have obviously been drafted by 
people lacking even an elementary knowledge of the methods of 
producing and analyzing gasoline." The U. S. Fuel Administration 
made a canvass of the state regulations and found them to be wholly 
impracticable and in some instances ridiculous. Since then a Federal 
committee on the standardization of petroleum has worked on the 
matter and with the Bureau of Mines has succeeded in bringing 
some degree of consistency into the situation. Unscientific and 
obsolete requirements have proved a troublesome and costly handi- 
cap to the marketing of petroleum products. 



MARKET ANALYSIS 221 

« 

Market Analysis. — Of recent years, many of the marketing com- 
panies have devoted considerable attention to the measurement of 
the size and geographic disposition of the various demands for 
petroleum products, in order to eliminate waste effort in distribution 
and salesmanship. Service stations are usually located on the basis 
of a count of automobiles that pass. The expansion of marketing 
equipment has proceeded, in part, upon the exact measurement of 
the consumptive requirements of the territory to be served. And 
wide use has been made of the registration figures for automobiles 
and trucks, in order to determine the rapidly expanding requirements 
for gasoline and motor-oil. A well-advised marketing company 
should know the exact distribution of automotive equipment and 
manufacturing activity in its area of operations. 



CHAPTER XVI 



ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS 



Y.teta 



COTTON 



BREADSTUFFS 



MINERAL OILS 



MEAT & DAIRY 
PRODUCTS 



Introduction. — Exports of mineral oils from the United States 
constitute one of the leading commodit}^ classes entering into 
foreign trade and represent an important fraction of the petroleum 
products refined in this country. In 1920 the value of the exports 
of mineral oils was 6.8 per cent of the total value of all exports, while 

in 1919 the proportion was 4.4 per cent 
and in 1918, 5.7 per cent. The only 
groups of commodities that bulked 
larger in the 1920 export returns were 
cotton and breadstuffs, each represent- 
ing about twice the value of the mineral 
oils sent abroad. (See Fig. 103.) 

Exports of mineral oils are confined 
largely to the four major petroleum 
products — gasoline, kerosene, fuel oil, 
and lubricating oils — the relative volume 
of crude petroleum exported being small. 
Thus, of the total mineral oils shipped 
abroad in 1920, only 10.9 per cent in 
quantity and 5.3 per cent in value 
represented crude petroleum. Com- 
pared with domestic production, exports 
of crude petroleum in 1920 amounted 
to 1.8 per cent, while exports of petro- 
leum products represented 16.1 per cent. 
Ratio of Exports to Domestic Produc- 
tion. — The American petroleum industry 
turns out a nearly 20 per cent greater 
volume of petroleum products than 
is necessary to meet domestic require- 
ments, the surplus being sold abroad under the heading of exports. 
Fig. 104 shows in graphic form the proportions of the domestic output 
of gasoline, kerosene, fuel oil, and lubricating oils which went into 
foreign trade in 1920. It will be observed at once that the propor- 

222 




ALL OTHERS 



FIGURES ARE MILLIONS OF DOLLARS 

Fig. 103. — Value of the exports 
of mineral oils compared with 
other exports from the United 
States in 1920. 



THE FUNCTION OF EXPORTS 



223 



tions of kerosene and lubricating oils exported are much higher than 
the proportions of gasoline and fuel oil. 

The ratio of exports to domestic production over the past few 
years for the leading petroleum products is shown in the table follow- 
ing: 

Table 102. — Ratio of Exports to Domestic Production for the Leading 
Petroleum Products, 1914-1920 



Year 


Gasoline and 
Naphtha, 
Per Cent 


Kerosene, 
Per Cent 


Fuel Oil, 
Per Cent 


Lubricating Oils, 
Per Cent 


1914 
1916 
1917 

1918 
1919 
1920 


14.0 
17.4 
14.6 

15.6 

9.4 
13.0 


52.1 
58.8 
38.1 

26.9 
41.7 
37.2 


18.8 
20.6 
17.3 

16.4 

8.1 
9.6 


37.2 
41.8 
37.2 

30.6 
32.5 
39.2 



EXPORTED |;:.-.;1UNEXP0RTED 



'.'•424.8 



'.•'•'. '.•'•'.-.'•'• "-'.'.801 4: 



'637: 



GASOLINE & 
NAPHTHA 



KEROSENE 



LUBRICATING 
OILS 



i i i i i — i — i — i — r 

lO 20 30 40 50 60 70 SO 90 lOOtf 
FIGURES IN RECTANGLES ARE MILLIONS 
OF GALLONS 

Fig. 104. — Relation of the volume of the lead- 
ing petroleum products exported to the 
quantity produced in the United States, in 
1920. 



Table 102 indicates the 
extent to which foreign 
markets are essential to give 
an adequate outlet to the 
leading petroleum products 
produced, especially kero- 
sene and lubricants. Ex- 
ports of gasoline relative 
to production were fairly 
steady over the past few 
years, whereas the ratio for 
fuel oil showed a declining 
tendency, while the ratios 
for kerosene and lubricants 
displayed a marked decline 
during the war years of 
1916-18 with an advancing 
tendency thereafter. 

The Function of Exports. 
— The purpose of exports 
from a trade standpoint is 
to give outlet to surplus 
domestic production, thus 
maintaining sufficient taut- 



224 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS 

ness between supply and demand to sustain prices. In normal times, 
also, an industry enjoying a large export trade is more stable than 
one more dependent upon domestic markets, as the business cycles in 
different countries do not coincide, and the composite demand is 
more nearly equalized. A secondary purpose is the placement of 
products in a more profitable market than is afforded at home. 

There is a more fundamental function of an economic character, 
especially true of the oil industry, in the part played by exports in 
sustaining a more nearly balanced outlet for joint-products and 

MILLIONS 
OF 

GALLONS 

500 



300 

200 
150 



lOO 
90 
80 
70 
60 
50 
40 

30 



10 





















































TOT 


l\L REFI 

1 \ 


JED PR 


)DUCTS 




































„ 


.... 




KERO 


>ENE 


Fl 


EL OIL 


GAS 

__ 


L, & RE 


SIDUUM 




," 








~*-.^ 










~»«. 












"~-v 


^1 — 


v 




\ / 


"; 












^^ 




X v 




X 


/ 
















N 


v 




/ ,, 


















V 


%, 


















^ 


X 


\ 


/ . 








/ G 


ASOLINE 


& NAP 


4THA^ 


^ 






'/ / 

/ 












/^ 


,-— - 


LUBRI 


GATING 


OILS 






^--' 


'1/ 













































SCALE OF 

INCREASE OR 

DECREASE 

100$ 
80 
|+ 60 
|+ 40 
20 


|- 10 
20 
30 
40 
50JC 



1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 



Fig. 105. — Exports of petroleum products from the United States by years 

1910-1920. 



in stimulating the commercial flow of products ahead of the pro- 
duction of crude petroleum. For example, the output of crude 
petroleum has mounted so rapidly, under a stimulus arising only in 
part from demand, that domestic markets for refined products were 
unable to keep pace; thus the vigorous construction of foreign mar- 
kets became an economic necessity, as exemplified in the efforts that 
have gone into sending kerosene to the four corners of the globe. Of 
recent years, also, when the domestic demand for gasoline has been 
increasting more rapidly than the demands for the joint-products of 
gasoline, a foreign outlet for kerosene, fuel oil, and lubricants has 
tended to better proportionate a demand thrown badly out of 



GROWTH OF EXPORTS 



225 



balance by the phenomenal rise of automotive transportation in this 
country. 

Growth of Exports. — The trend of exports for the principal petro- 
leum products over the past decade is presented in Fig. 105. It is 
there seen that up to 1918 the volume of fuel oil and gasoline exported 
was increasing sharply, while the shipments abroad of lubricating 
oils were growing at a slower ratio, with exports of kerosene declining. 
The effect of the war was strongly pronounced only for kerosene, 
which suffered because of the difficulty of access to far eastern 
markets. The termination of the war, however, reversed the situa- 
tion, sharply curtailing in 1919 the exports of gasoline and fuel oil, 
at the same time sending the exports of kerosene upward toward 
a pre-war normal. This sharp reversal of export conditions in 1919 
had a marked effect upon the domestic situation, contributing to the 
laxity of the gasoline and fuel oil market and to the strength of the 
kerosene market. In 1920, in spite of the continuation of unstable 
conditions abroad, the foreign shipments of gasoline, fuel oil, and 
lubricants showed notable increases over 1919, kerosene only falling 
away in some measure. 

The volume of refined oils exported from 1910-1920 is given in 
Table 103. 



Table 103. — Exports of the Principal Petroleum Products from the 

United States by Years, 1910-1920 

{In millions of gallons) 



Year 


Gasoline and 
Naphtha 


Kerosene 


Fuel Oil 


Lubricating Oils 


1910 


101 


940 


118 


164 


1911 


137 


1112 


134 


183 


1912 


186 


1026 


266 


216 


1913 


188 


1119 


427 


208 


1914 


210 


1010 


704 


192 


1915 


282 


837 


812 


240 


1916 


356 


855 


964 


261 


1917 


416 


658 


1125 


280 


1918 


559 


491 


1201 


257 


1919 


372 


979 


618 


275 


1920 


635 


862 


847 


411 



Value of Exports. — The value of the principal petroleum products 
exported from the United States from 1910-1920 is shown in Table 
104. A graphic comparison of the value of these exports in 1913, 



226 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS 

1919, and 1920 is given in Fig. 106, which emphasizes the notable 
increase over the period under view, the value of refined oil exports 

549 



FIGURES ARE MILLIONS OF DOLLARS 




GASOLINE & NAPHTHA 



KEROSENE 



FUEL OIL 



LUBRICATING OILS. 



CRUDE PETROLEUM 



1913 



1919 



1920 



Fig. 106. — Value of petroleum products exported from the United States in 1913, 

1919, and 1920. 



roughly doubling the 1913 figures in 1918, and trebling the 1913 record 
in 1920. Fig. 106 also brings out the marked advance in the value 



COMPARISON OP EXPORT AND DOMESTIC PRICES 227 



of the lubricating oils exported in 1920, as compared with 1919 as well 
as relative to the increases registered for the other petroleum products. 

Table 104. — Value of the Principal Petroleum Products Exported from 
the United States by Years, 1910-1920 

{In millions of dollars) 



Year 


Gasoline and 
Naphtha 


Kerosene 


Fuel Oil 


Lubricating Oils 


1910 


8.41 


55.6 


3.73 


20.9 


1911 


11.5 


61.1 


3.88 


23.3 


1912 


20.5 


62.1 


6.60 


28.3 


1913 


28.1 


72.0 


11.1 


29.6 


1914 


25.3 


64.1 


19.2 


26.3 


1915 


33.9 


50.0 


22.5 


32.5 


1916 


68.7 


55.9 


27.1 


43.0 


1917 


93.1 


49.0 


45.7 


57.6 


1918 


140 


50.4 


66.6 


75.6 


1919 


92.0 


119 


32.6 


85.1 


1920 


175 


132 


55.9 


157 



Comparison of Export and Domestic Prices. — The prices realized 
on the petroleum products exported may be determined by dividing 
the value of exports by the gallonage. A comparison of the average 

Table 105. — Comparison of Average Export Prices with Domestic Prices 
for the Principal Petroleum Products by Years, 1913-1920 



Year 


Gasoline and 
Naphtha 


Kerosene 


Fuel Oil 


Lubricating Oils 


Average 
Export 
Price, 
Cents 


Average 

Domestic 

Price, 

Cents 


Average 
Export 
Price, 
Cents 


Average 

Domestic 

Price, 

Cents 


Average 
Export 
Price, 

Dollars 


Average 

Domestic 

Price, 

Dollars 


Average 
Export 
Price, 

Cents 


Average 

Domestic 

Price, 

Cents 




per 
Gallon 


per 
Gallon 


per 
Gallon 


per 
Gallon 


per 
Barrel 


per 
Barrel 


per 
Gallon 


per 
Gallon 


1913 


14.9 


15.6 


6.4 


7.9 


1.09 


1.06 


14.2 


15.4 


1914 


12.0 


13.0 


6.3 


7.6 


1.15 


.90 


13.7 


15.6 


1915 


12.0 


11.7 


6.0 


7.1 


1.16 


.72 


13.5 


14.9 


1916 


19.3 


18.9 


6.5 


7.9 


1.19 


1.04 


16.5 


18.3 


1917 


22.4 


20.6 


7.4 


8.5 


1.70 


1.57 


20.6 


19.5 


1918 


25.0 


21.7 


10.3 


10.2 


2.33 


2.01 


29.4 


30.9 


1919 


24.7 


22.2 


12.2 


12.7 


2.22 


1.59 


30.9 


32.2 


1920 


27.6 


26.5 


15.2 


17.1 


2.77 


2.79 


38.2 


49.0 



228 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS 

export prices so determined with the average domestic prices calcu- 
lated from price quotations is given in Table 105. 

It may be observed that export prices for gasoline and fuel oil 
have in general run slightly above the corresponding domestic 
prices, while the reverse has tended to be true of kerosene and 
lubricating oils. 



641 



•••.180: 




^•T«SM 




FBAJiC-E 



UNITED KINGDOM 



CANADA 



ITALY 

NEW ZEALAND 
ARGENTINA 
GERMANY 
BRAZIL 



ALL OTHERS 



FIGURES ARE MILLIONS OF GALLONS 

Fig. 107. — Destination of gaso- 
line and naphtha exported 
from the United States in 1920. 





■xv.-.vjra; 




UNITED KINGDOM 



NETHERLANDS 
BRITISH INDIA 

JAPAN 

ITALY 

GERMANY 

DENMARK 

BELGIUM 

CANADA 



ALL OTHERS 



FIGURES ARE MILLIONS OF GALLONS 

Fig. 108.— Destination of 
kerosene exported from 
the United States in 1920. 



Distribution of Exports. — The countries to which the exports of 
mineral oils arc consigned are given in full detail in the reports of 
the Bureau of Foreign and Domestic Commerce. 1 A summary of 

1 Monthly Summary of Foreign and Domestic Commerce, and Foreign Com- 
merce and Navigation of the United States (Annual). 



DISTRIBUTION OF EXPORTS 



229 



such data for the year 1920 is given in graphic form in Figs. 107 
-110. 

Fig. 107 shows that over half of the gasoline exported in 1920 went 



411 



862 




:1:87--:^ 





UNITED KINGDOM 



CANADA \ 



ITALY 



NETHERLANDS 



MEXICO 
PANAMA 



ALL OTHERS 



FIGURES ARE MILLIONS OF GALLONS 

Fig. 109. — Destination of fuel 
and gas oil exported from the 
United States in 1920. 




v66-:- 







■H 



lYsss.-AQ-.v.-.-s. 




UNITED K1KGDQM 



GERMANY 



BELGIUM 



SWEDEN 
ARGENTINA 



ALL OTHERS 



FLGURES ARE MILLIONS OF GALLONS* 

Fig. 110. — Destination of lu- 
bricating oils exported from 
the United States in 1920. 



to France and the United Kingdom. Germany is also shown as 
having entered the market in appreciable degree. 



230 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS 

In Fig. 108 is seen a more equable division of kerosene among a 
greater number of nations. China appears as a large foreign con- 
sumer of this product, second only to the United Kingdom. Ger- 
many ranks along with Italy and Denmark. 



MONTHLY AVERAGE 
BY YEARS 



MONTHLY AVERAGE 
BY MONTHS 




/ 



1910 



/ 



V 



S*' 



GASOLINE 

AND 
NAPHTHA 



KEROSENE 



FUEL OIL 

GAS OIL 

AND 

RESIDUUM 



LUBRICATING 
OILS 



CRUDE 
PETROLEUM 



1915 1920 




1919 



1920 



Fig. 111. — Exports of mineral oils from the United States. 



The destination of fuel oil exports is analyzed in Fig. 109, which 
shows the United Kingdom and Canada as the leading recipients, 
with Italy, Chile, Netherlands and France as taking second place. 



CURRENT TREND OF EXPORTS 



231 



Table 106. — Exports of the Principal Petroleum Products from the 

United States 
Data from Bureau of Foreign and Domestic Commerce 

{In millions of gallons) 



Monthly Average 


Gasoline and 
Naphtha 


Kerosene 


Fuel Oil 

(Including Gas 

Oil and 

Residuum) 


Lubricating 
Oils 


1913. . 


16 
18 
24 
30 

35 

47 


93 
84 
70 
71 

55 
41 


36 
59 
68 
80 

94 
100 


17 
16 
20 

22 

23 
21 


1914 


1915. . 


1916. . 


1917 


1918 




1919 

January 

February 

March 


31 

48.0 
27.0 
22.4 

27.6 
26.1 
31.8 

24.5 
29.6 
34.7 

40.5 
31.0 
29.2 


82 

68.4 
67.3 
54.3 

93.2 

79.9 
124 

76.2 
84.0 
75.6 

94.3 
65.5 
93.3 


i 
52 

74.6 
36.9 
36.9 

45.9 
42.6 
54.2 

44.8 
39.0 
38.6 

65.9 

81.6 
56.6 


23 

21.5 
26.9 
21.3 

30.1 
19.1 
25.1 

15.5 

20.7 
19.7 

23.9 
26.3 
27.5 


April 


Mav 


June 


Julv 


August 


September 

October 


November 

December 

1 


1920 


53 

30.6 
32.3 
47.1 

43.5 
69.0 
68.5 

81.8 
58.7 
39.9 

65.3 
40.0 
66.8 


72 

81.2 
75.7 
79.7 

67.7 
56.5 
62.0 

58.5 
74.6 
62.7 

69.6 

80.7 
89.7 


71 

74.6 
52.1 

67.8 

78.3 
69.8 
67.8 

78.9 
58.8 
59.9 

92.5 
65.2 

84.2 


34 

23.7 
33.2 
44.2 

38.7 
41.6 
26.5 

28.3 
34.2 

28.5 

32.5 
34.4 
50.5 


January 


February 

March 


April 


May 


June 


July 


August 


September 

October 


November 

December 


1921 


54.5 
53.6 
47.1 

57.0 
40.5 
38.6 

29.0 


79.1 

68.2 
63.9 

58.8 
51.9 
64.2 

36.0 


110 
72.9 
69.3 

72.3 

50.6 
62.1 

76.8 


37.9 
30.5 
14.7 

22.6 
16.8 
15.1 

18.9 


January 

Februar y 

March 

April 


Mav 


June 


July 



232 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS 

Mexico and Panama are interesting names to find included, since the 
first-named is herself a prominent producer of fuel oil. 

Fig. 110 shows the distribution of American-made lubricating oils, 
which in 1920 went largely to the United Kingdom, France, Germany, 
Belgium, and Italy; but small quantities penetrated practically 
every country in which manufacturing is carried on. If the indus- 
trial activity of the United States is approximately equal to that 
of the rest of the world, as would appear to be the case from a com- 
parison of the energy materials used here and abroad, the export 
figures indicate that roughly half of all foreign commerce and industry 
is lubricated by the products of American petroleum. In terms of 
world figures, these estimates go to show that approximately three- 
quarters of the lubricating needs of the entire world are dependent 
upon the American oil industry. 

Current Trend of Exports. — The trend of exports of the principal 
petroleum products by months during 1919 and 1920 is shown in 
Fig. Ill in a form facilitating comparison, the supporting data being 
presented in Table 106. The data and their graphical interpretation 
are presented as an example of a convenient method for following 
the situation currently. 

Future of Petroleum Exports. — The outstanding foreign market 
for petroleum products is Europe, although considerable quantities 
of kerosene go to the Far East, particularly China, and South America 
is coming in for a growing share of the mineral oils sent abroad. 
Since the armistice, European credits have been in an unsettled 
condition, although throughout 1919 and 1920 Europe's buying 
power was artificially sustained first through vast loans extended by 
the United States Government and later on through credits extended, 
in part indirectly, by American banks. For the coming few years, 
the foreign demand for American goods is difficult to appraise, but 
raw materials and products in which the ratio of labor-cost to raw 
material costs is low (such as refined mineral oils), may be expected 
to enjoy a brisker demand abroad than goods whose values are 
largely fabricated into them. 

Taking a long-range view ahead, we are faced by an ultimate 
shortage of crude petroleum in respect to the requirements of the 
domestic market alone, in contrast to the conditions of the past in 
which an oversupply was forced to seek relief abroad. As foreign 
oil-fields become more actively productive, and American oil-fields 
commence their inevitable decline, the proportions of American 
petroleum products shipped abroad may be expected to assume a 
waning role. 



CHAPTER XVII 



PRICES OF PETROLEUM AND ITS PRODUCTS 



Introduction. — For the purpose of analyzing the price relations 
ships of crude petroleum and its products, the period of 1913-1921 
was selected, and weighted average monthly prices for the commodi- 
ties shown in Table 107 were calculated from the weekly quotation- 
appearing in trade journals. 

Table 107. — Data Used in Price Analysis 



Commodity 


Quotation 


Composition of 
Average 


Source of Data 


1. Crude petroleum. . . 

2. Gasoline 


At wells 
Tank-wagon 
Tank-wagon 
At refinery 

Jobbing 


Five grades 

Five cities 

Five cities 

Five locations 

Five grades 

Average of Nos. 
2, 3, 4, and 5 
327 commod- 
ities 


National PetroleumNews 
National Petroleum News 
National Petroleum News 
National Petroleum News 
Oil, Paint and Drug Re- 
porter 

Monthly Labor Review, 
U. S. Bur. Lab. Stat. 


3. Kerosene 


4. Fuel oil 


5. Lubricating oils. . . . 

6. Petroleum products . 

7. All commodities. . . . 


Wholesale 



The weighted average prices so obtained were then recalculated in 
percentages of the respective average prices for the year 1913, thus 
getting series of index numbers which render the various price 
trends directly comparable with one another, as well as with indices 
of prices in general which are similarly compiled by the Government 
and other agencies. An added advantage of this method of treat- 
ment is that reference may at all times be had to the pre-war price- 
level of 1913. 

The price data presented in this chapter are a continuation, with 
some minor modifications, of the price figures published by the U. S. 
Fuel Administration and War Industries Board in 1919, where refer- 
ence to the detailed figures for the period 1913-1918 may be had. 1 

1 Pogue and Lubin, Prices of Petroleum and Its Products During the War, 
U. S. Fuel Administration, Washington, 1919, 55 pp.; also published by the 
War Industries Board as Part 36 of History of Prices During the War. A 
portion of the present discussion is based upon that investigation. 

233 



234 



PRICES OF PETROLEUM AND ITS PRODUCTS 



Table 10S. — Index Numbers of the Prices op Crude Petroleum and Its 
Principal Products in the United States my Months, 1913-1921 



(Prices for 1913 = 100) 





1 
Crude 

Petroleum 
at 

Wells 


Petroleum 
Products 


Gasoline 
Tank- 
wagon 


Kerosene 
Tank- 
wagon 


Fuel 

Oil 

at 

Refinery 


Lubricat- 
ing 
Oils, 

Jobbing 


All Com- 
modities, 
U. S. Bur. 
Labor Stat. 


1913, Year 

Months: 
January. . . 
February. . 
March .... 

April 

May 

June 

July 

August .... 
September . 

October . . . 
November. 
December . 


100 

87 

95 

100 

99 
100 
100 

101 
103 
104 

104 
104 

106 


100 

101 
101 
101 

102 
102 
101 

101 
100 
100 

99 
98 
97 


100 

101 
103 
104 

104 
103 
103 

100 
99 
99 

99 
96 
93 


100 

99 
99 
99 

99 
101 
101 

101 
101 
101 

101 

101 

99 


100 

102 
100 
100 

105 
104 
101 

100 

102 

97 

96 
99 
96 


100 

100 
100 
100 

100 
100 
100 

100 
100 
100 

100 
100 
101 


100 

100 

100 

99 

98 

98 

100 

100 
101 
102 

101 
101 

99 


1914, Year 

Months: 
January. . . 
February. . 
March .... 

April 

May 

June 

July 

August. . . . 
September . 

October . . . 
November. 
December . 


82 

107 
108 
106 

100 
83 

77 

75 
75 
67 

62 
61 
61 


89 

97 
96 
95 

95 
93 
91 

88 
85 
84 

83 
82 
82 


83 

94 
93 
92 

91 
90 

85 

81 

78 
77 

75 
73 
73 


97 

99 
99 
99 

99 

97 
97 

95 
90 
95 

95 
95 
95 


85 

99 
100 

98 

93 
91 
90 

83 
80 
73 

71 

70 
68 


101 

100 

100 

99 

102 
102 
102 

102 
102 
102 

102 
102 
102 


100 

100 

99 
99 

98 
98 
99 

100 
103 
104 

99 
98 

98 


1915, Year 

Months: 
January. . . 
February. . 

March .... 

April 

May 

June 

July 

August. . . . 
September. 

October. . . 
November. 
December . 


65 

62 
63 

58 

56 
55 
55 

55 
59 
73 

77 
80 
92 


80 

80 
78 
70 

76 
76 
76 

75 
76 

78 

85 
92 
98 


75 

73 
72 
69 

69 
69 
69 

66 
67 
71 

82 

91 

100 


90 

92 
90 
90 

87 
86 
86 

89 
89 
90 

91 
94 
99 


68 

67 
66 
61 

62 
62 
62 

64 
65 
60 

70 
83 
85 


97 

97 

95 
95 

95 
95 
95 

95 
95 
95 

100 
100 
104 


101 

99 

101 

99 

100 
101 

99 

101 
100 
99 

101 
103 

106 



PRICE OF CRUDE PETROLEUM 



235 



Table 108. — Index Numbers of the Prices of Crude Petroleum and Its 
Principal Products in the United States by Months, 1913-1921 — (Cont.) 





Crude 

Petroleum 

at 

Wells 


Petroleum 
Products 


Gasoline 
Tank- 
wagon 


Kerosene 
Tank- 
wagon 


Fuel 

Oil 

at 

Refinery 


Lubricat- 
ing 

Oils, 
Jobbing 


All Com- 
modities, 
U. S. Bur. 
Labor Stat. 


1916, Year 

Months: 
January. . . 
February . . 
March. . . . 

April 

May 

June 

July 

August. . . . 
September. 

October . . . 
November . 
December . 


117 

108 
115 
123 

126 
130 
130 

129 
112 
101 

103 
106 

117 


114 

104 
109 
113 

113 
119 
119 

119 
118 
114 

113 
114 
114 


121 

111 

107 
125 

127 
129 
129 

129 
127 
120 

116 
114 
114 


101 

101 
102 

102 

105 
105 
105 

102 

100 

98 

98 
95 
96 


98 

99 
101 
102 

98 
88 
90 

91 
91 
95 

98 
109 
111 


119 

103 
103 
101 

101 
127 
127 

127 
127 
127 

127 
127 
127 


124 

110 
112 
114 

117 
118 
119 

119 
123 
128 

134 
144 
146 


1917, Year 

Months: 
January. . . 
February. . 
March .... 

April 

May 

June 

July 

August .... 
September . 

October . . . 
November. 
December . 


155 

130 
147 
148 

148 
149 
151 

152 
152 
170 

170 
170 
170 


130 

120 
125 
126 

127 
129 
129 

132 
132 

133 

135 
135 
137 


132 

122 
129 
130 

132 
132 
132 

132 
132 
135 

135 
135 

135 


108 

99 
102 
105 

105 
108 
108 

108 
108 
113 

111 
113 
118 


147 

123 
130 
131 

131 
133 
138 

157 
157 
157 

165 
166 
175 


127 

127 
127 
127 

127 
127 
127 

127 

127 
127 

127 

127 
127 


176 

151 
156 
161 

172 
182 
185 

186 
185 

183 

181 
183 

182 


1918, Year 

Months: 
January. . . 
February. . 
March .... 

April 

May 

June 

July 

August. . . . 
September. 

October . . . 
November . 
December . 


194 

174 
177 
184 

193 
196 
196 

196 
197 
204 

204 
204 
204 


160 

152 
154 
156 

158 
162 
162 

162 
163 
164 

164 
164 
162 


139 

135 
135 
135 

135 
139 
139 

139 
141 
142 

142 
142 

142 


130 

124 
124 
124 

124 
129 
129 

129 
134 
136 

136 
136 
136 


189 

180 
179 
179 

187 
197 
198 

198 
193 
195 

194 
185 

184 


201 

183 
195 

199 

202 
202 
202 

204 
206 
206 

206 
203 
203 


196 

185 
186 

187 

190 
190 
193 

198 
202 

207 

204 
206 
206 



236 



PRICES OF PETROLEUM AND ITS PRODUCTS 



Table 108. — Index Numbers ok the Prices of Crude Petroleum and Its 
Principal Products in the United States by Months, 1913-1921 — (Cont.) 





Crude 

Petroleum 

at 

Wells 


Petroleum 
Products 


Gasoline 
Tank- 
wagon 


Kerosene 
Tank- 
wagon 


Fuel 

Oil 

at 

Refinery 


Lubricat- 
ing 
Oils, 
Jobbing 


All Com- 
modities, 
U. S. Bur. 
Labor Stat. 


1919, Year 

Months: 
January. . . 
February. . 
March. . . . 

April 

May 

June 

July 

August. . . . 
September. 

October . . . 
November. 
December . 


197 

202 
197 
195 

192 
192 

192 

192 
192 

197 

197 
202 
208 


159 

166 
161 
158 

157 
157 
157 

158 
159 
160 

160 
159 
179 


142 

144 
142 
142 

142 
142 
142 

142 

142 
142 

142 
142 
142 


162 

139 
139 
141 

145 
150 
155 

169 
177 

178 

182 
182 
186 


149 

169 
150 
145 

135 
131 

129 

129 
131 
135 

140 
152 
237 


209 

216 
216 
210 

210 
206 
207 

207 
206 
205 

205 
205 
212 


212 

203 
197 
201 

203 
207 
207 

218 
226 
220 

223 
230 
238 


1920, Year.... 

Months: 
January. . . 
February. . 
March .... 

April 

May 

June 

July 

August. . . . 
September. 

October . . . 
November . 
December . 


301 

250 
260 
300 

308 
312 
312 

314 
314 
314 

314 
312 

307 


225 

190 
202 
223 

228 
235 
242 

236 
238 
237 

230 
221 
215 


170 

148 
152 
161 

166 
168 
172 

172 
176 
180 

180 
179 

178 


217 

198 
201 
207 

211 
211 
216 

218 
229 
230 

226 
226 
226 


262 

219 
219 
270 

275 
304 
299 

294 
292 
284 

258 
230 
200 


318 

256 
295 
330 

334 
336 
361 

338 
334 
325 

316 
298 
292 


243 

248 
249 
253 

265 
272 
269 

262 
250 
242 

225 
207 
189 


1921: 

Months: 
January. . . 
February. . 
March .... 

April 

May 

June 

July 

August.. . . 


288 
192 
174 

176 
159 
127 

112 
110 


200 
176 
164 

160 
142 
137 

131 

129 


177 
160 

154 

151 
141 
137 

132 
129 


222 
189 
186 

178 
160 
146 

137 
137 


181 
135 
131 

131 
116 
102 

96 
97 


251 
218 
202 

194 
154 
154 

148 
148 


177 
167 
162 

154 
151 

148 

148 
152 



Index numbers for six series of oil prices — crude petroleum, gaso- 
line, kerosene, fuel oil, lubricating oils, and these four petroleum 
products averaged into a composite — are presented in Table 108, 
together with index numbers representing the run of wholesale 



PRICE OF CRUDE PETROLEUM 



237 



prices in general in the United States. The last-named series of 
index numbers, representing an average of 327 commodities in which 
due allowance is made for the relative importance of the different 
items, are those calculated by the U. S. Bureau of Labor Statistics 
and published in the Monthly Labor Review — the official measure 
of the country's wholesale price-level. 

Price of Crude Petroleum. — The major portion of the crude petro- 
leum produced is purchased by pipe-line companies. Nominally 
these companies transport the oil at tariff rates, but actually the} r 
buy the oil outright, paying the market (posted) rate which is sup- 
posed to be the delivered price at the refinery less transportation. 
The price in a given district is determined by the announcement, or 
posting, by one of the purchasing concerns of the price it will pay. 
When competition exists, the other purchasing concerns usually 
follow at once. To the base-price may be added certain premiums 
for quality, delivery, credit, etc., and from the base-price certain 
deductions are made for sand, water, etc. 

In times of sharp demand, much oil is purchased at a premium 
above the posted price, whereas in periods of slack, quantities of 
oil may be purchased below the base-price. The following premiums 
were paid by one independent purchasing concern in the Mid- 
Continent field during a recent four-year period : 

Table 109. — Premiums Paid for Crude Petroleum by a Purchasing Concern 
in the Mid-Continent Field 
(Data from Bates and Lasky) 



Year 


Millions of Barrels 
Purchased 


Millions of Dollar s 
paid in Premiums 


Premium per Barrel 


1917 
1918 
1919 
1920 


216 
586 

841 

88 

* 


18.5 
134 
494 

23 


8 . 5 cents 
22.9 cents 
58 . 75 cents 
26 . 12 cents 



No systematic public record of the premiums paid is kept, so 
recourse must be had to the posted prices in determining the trend 
of the crude petroleum market. Index numbers representing the 
weighted average of the posted prices of five grades of petroleum — 
Pennsylvania, Illinois, Kansas-Oklahoma, Gulf Coast and California 
— are given in Table 108 and plotted on a ratio scale against gasoline, 
kerosene, fuel oil, and lubricating oils in turn in Figs. 112, 115, 116 
and 117. 

1 See also Fig. 122, page 256, in which the average price of crude petroleum 
is plotted against the domestic production of crude petroleum. 



238 



PRICES OF PETROLEUM AND ITS PRODUCTS 



There were nine major events in the price history of crude petro- 
leum in the nine-year period of 1913-1921, to which the crude oils 
east of the Rocky Mountains were closely sympathetic, with Cali- 
fornia less definitely reactive. 1 These may be described separately 
as outstanding features, to which all other circumstances are subor- 
dinate, and are to be held clearly in mind as carrying a dominating 
influence into the price relations of petroleum products. (See Fig. 112.) 



INDEX 

500 



300 
250 

200 
150 

lOO 
90 

80 

70 



































' 




















j 










c 


RUDE PETROLEUM 


/ 

i 


i 
I 
I 










1" 


GASC 


)LINE X 












F \ J 


i ^__ 




v. 




Y 

\ 
\ 
\ 

\ 




/ ~A 


\ 
















' 


A 


/ 
















-x 


















\ 


/ 


















v / 















1913 1914 1915 1916 1917 1918 1919 1920 1.92.1 

Fig. 112. — Relative prices of crude petroleum and gasoline by months, 1913-1921, 
in percentages of the average figures for 1913. (Average prices in 1913 = 100.) 

1. The 1913 Period of Normal Price Advance. — The year 1913, 
together with the early months of 1914, was characterized by a 
normal advance in crude prices resulting in general from the rapidly 
increasing demand for petroleum, and in particular from a ten- 
dency toward declining production in the Pennsylvania field, which 
reacted to bring a rise in price and inclined to set the pace for the 
rest of the country. 

2. The Gushing Overproduction of 1914-1915. — The strengthen- 
ing markets of 1913 stimulated a country-wide drilling, campaign, 
which culminated in the tapping of the deep sands of the dishing 

1 It should be held in mind that the petroleum situation in California stands 
rather sharply apart from the rest of the country, owing chiefly to the geographic 
and commercial individuality of that section. 



PRICE OF CRUDE PETROLEUM 239 

Pool in Oklahoma in April, 1914. Production "went wild"; oil 
in endless quantities poured forth from a multitude of wells drilled 
in frenzied haste. Excepting in California, the bottom dropped out 
of the entire crude-oil market. The price slump was unprecedented 
in the history of the oil industry. The effect upon the petroleum 
industry of the outbreak of the European war in July, 1914, was 
largely drowned in the flood of Cushing oil. 

3. The Recovery of 1915-1916. — Each action has its reaction and 
Cushing proved no exception. By August, 1915, Cushing, while 
still productive, had run its course. Encouraged by an ever-accel- 
erating demand for gasoline, and by the purchase and removal from 
the open market of large quantities of surplus Cushing crude, prices 
recuperated with even greater rapidity than they had declined, and 
by the end of 1915 the market was just surmounting its pre-Cushing 
level. This advance continued through the first quarter of 1916, 
but after the manner of such things overreached itself. Overstim- 
ulated drilling, especially in the Mid-Continent field, brought a 
surplus production with a corresponding price depression, far less 
serious, however, than the disastrous overproduction of the Cushing 
days. 

4. The Minor Slump of 1916. — The recovery from Cushing, then, 
was too rapid. There came a temporary relapse, strongest in Mid- 
Continent prices, and the last half of 1916 saw a repetition of the 
Cushing depression on a minor scale. With the turn into 1917, 
however, the recovery was complete. 

5. The War Stimulus of 1917-1 $18. — Under the stimulus of war 
conditions — strengthening demands, increasing production costs, 
eagerness to insure adequate increases in output, and the general 
atmosphere of increasing prices — the prices of crude advanced at 
intervals the country over, until in early 1918 they attained a height 
in general roughly double the pre-war level. The reaction was uni- 
form and singularly coincident on the part of the crude petroleums 
of the entire country. 

6. The Governmental Stabilization. — The tendency toward price 
advance under war stimulus was checked with the advance of 25 
cents per barrel in Mid-Continent crude in April, 1918, and def- 
initely controlled in the latter half of 1918 by a plan of voluntary 
stabilization put into execution by the National Petroleum War 
Service Committee representing the petroleum industry, and the Oil 
Division of the United States Fuel Administration representing the 
Government. 1 Prices were thus stabilized and brought under check 

1 For a detailed account of this interesting example of industrial administra- 
tion consult Pogue and Lubin, Prices of Petroleum and Its Products During 
the War, pp. 26-29. 



240 PRICES OF PETROLEUM AND ITS PRODUCTS 

on the assumption that further advances would not serve as a suf- 
ficient additional stimulus to production to justify the cost to the 
public. 

7. The Post-war Reaction of 1919. — The closing year of the war, 
with its insistent demands for gasoline and fuel oil, strongly stimu- 
lated the production of crude petroleum and, following the armistice, 
1919 opened with a bountiful output that faced a peace-time adjust- 
ment in requirements. The demand for gasoline, adjusting itself 
easily to the changed condition, went on unabated, but the demand 
for fuel oil fell away, leaving an oversupply of this commodity. In 
consequence, the price of light crudes, productive of gasoline, suf- 
fered no recession, but the price of heavy crudes such as those of the 
Gulf Coast fell slightly, so that the composite curve shows a moder- 
ate sagging during the year. 

8. The Boom Period of 1920. — In late 1919, partly because of 
the period of inflation upon which the business of the entire coun- 
try had entered and partly as a result of a demand for fuel oil which 
had been actively stimulated by the efforts of the oil industry as 
well as by the circumstances of a disastrous coal strike, the crude 
oil market showed a gathering strength which culminated in a 
sharp and almost unprecedented rise during the first quarter of 
1920. Oil-field activity speeded up to a white heat, the prices of 
refined products leaped forward as if released from restraint, and the 
entire field of oil became involved in a period of frenzied expansion 
on a scale never before so fully experienced. Then came deflation 
and liquidation in the industrial structure of the entire country. 
But oil persisted as if immune. The highest levels in crude-oil 
prices were not attained until July; the effect of these rising prices 
were cumulative. The domestic output of crude petroleum was pro- 
gressively stimulated, at the same time that shipments of crude 
petroleum from Mexico were coming to this country in unprecedented 
volume. An oversupply, on the one hand, an industrial depression 
on the other — still the price of crude petroleum held high. Not 
until the close of the year did crude oil prices weaken, and then only 
the heavy crudes most directly affected by the flood of oil from 
Mexico. The year closed with the price structure of crude petro- 
leum overripe for a tumble. 

9. The Price Tumble of Early 1921. — During the first two months 
of 1921 the inevitable happened. Between the first week in Janu- 
ary and the last week in February the average price of crude cascaded 
from $3.50 to $1.98 a barrel, a drop of 43 per cent. In all parts of 
the country but California the declines were precipitous. In a few 
brief weeks, the levels of early 1918 were attained. The rise of 



PRICE COMPARED WITH COST OF DRILLING 



241 



1920 and more had been eliminated. Another price cycle had run 
its course. And just as the price rise of early 1920 overreached 
itself and led to the subsequent break in the crude-oil market, so 
the price reaction of 1921 went to undue length, laying the basis for 
a sensational rise in price later on. 

Price" Compared with Cost of Drilling. — The price of crude petro- 
leum, in spite of many downward reactions, has been trending sharply 
upward at an average rate of 22 per cent annually during the eight- 
year period 1913-1920. (See Fig. 121, page 255.) This upward 
tendency is due mainly to (a) the increasing cost of drilling arising 
from the greater number of well-feet per barrel, (6) the increased cost 
of materials and labor, and (c) the mounting demand for oil products. 
It is difficult to disentangle and separately appraise these three fac- 
tors, but as time goes on (a) and (c) may be expected to contribute a 
further impetus upward, although (b) is tending downward. The 
items of cost in drilling a typical oil-well 2500 feet in depth in the 
Mid-Continent field, in percentages of the average figures for 1913, 
are presented in Table 110 for successive years from 1913 to 1920, 
which gives a measure of factor (6) noted above. 

Table 110. — Cost of Drilling and Equipping a Typical 2500-foot Well in 
the Mid-Continent Field by Years, 1913-1920 

(Data from Bates and Lasky, after F. W. Swift) 

(In percentages of the figures in 1913) 





1913 


1914 


1915 


1916 


1917 


1918 


1919 


1920* 


Casing 


100 
100 
100 
100 


97 
166 
108 
106 


96 
180 
111 
106 


130 
216 
119 
121 


184 
246 
145 
154 


205 

277 
172 
185 


258 
382 
232 
225 


258 
382 
278 
223 


Contract drilling 


Labor 


Miscellaneous 


Total 


100 


113 


115 


141 


181 


208 


267 


271 





Estimated by Bates and Lasky. 



The total cost of drilling as presented in Table 110 in percentages 
of the 1913 cost, is plotted in Fig. 113 against the average price of 
Mid-Continent crude similarly expressed. This chart shows how 
the price movement in periods of oversupply, such as the year 1915, 
lags behind drilling costs, and in periods of strong demand such as 
1920 rises above the cost of drilling level. 

The Price of Gasoline. — As representative of the wholesale price 
of gasoline, the tank-wagon prices at five populous cities in various 



242 



PRICES OF PETROLEUM AND ITS PRODUCTS 



INDEX 
500 



400 



parts of the country — New York, Baltimore, Chicago, Kansas City 
and San Francisco — were averaged and recalculated in percentages 
of the average price in 1913. The index numbers so obtained are 
given in Table 108, and plotted in comparison with the price trend 
of crude petroleum in Fig. 112. It cannot be emphasized too strongly 
that gasoline is a joint product with kerosene, fuel oil, and lubricants, 

and accordingly that 
the price of gasoline 
cannot be interpreted 
as a separate matter, 
but is intelligible only 
in terms of price fluc- 
tuations of crude pe- 
troleum on the one 
hand, and of kerosene, 
fuel oil, and lubricants 
on the other. 

The outstanding 
features in the course 
of gasoline prices are 
eight in number. 

1. The Relative Sta- 
bility of 1913.— Gaso- 
line commenced 1913 
with slight advances 
in price in keeping 
with the upward trend 
in the crude market, 
but after the first 
quarter of the year, 
gasoline prices fell 
away gently but 



150 



lOO 
90 
80 
70 











































7 "" 












/ 
/ 












/''' 






COS - 

TYPICA 


■ OF 

. WELL J 




y 








_— — — 




\ 














\ 


















/av 


ERAGE 1 


>RICE O 










/CRI 


JDE PE1 


"ROLEUI\ 


1 















































1915 1916 1917 1918 1919 1920 



1914 

Fig. 113. — Comparison of the increase in cost of a 

typical well with the increase in price of crude steadily in opposition 
petroleum in the Mid-Continent Field, 1913-1920; to the continued up- 
data from Bates and Lasky. (Figures for 1913 = 100.) ward trend of crude. 

The departure, how- 
ever, was slight and to be attributed to local variations, perhaps 
fortuitous, and certainly with little, if any broad significance. This 
period, on the whole, was uneventful and characterized by stability. 
2. The dishing Depression. — The gasoline response to the Cushing 
overproduction was immediate and striking. With the serious 
impairment of the crude-oil market, the price of gasoline responded 
with an almost parallel slump. 



THE PRICE OF GASOLINE 243 

3. The Recovery of 1915-1916. — Closely paralleling the recovery 
of the crude market following the culmination of the Gushing episode, 
and as a result of the same range of causes, gasoline advanced over 
60 per cent between July, 1915, and May, 1916, attaining a price- 
level scarcely less than that prevailing at the end of 1918. The 
suddenness of the advance in respect to a product in universal use, 
following so closely upon the heels of an era of cheap gasoline, created 
country-wide interest and concern and led to an investigation on the 
part of the Federal Trade Commission, which reported " that a 
decreasing supply of light crudes, coupled with increasing foreign 
and domestic demands, explains a part of the advance in gasoline 
prices during 1915, but that part of the advance in certain sections 
at least, was unnecessary and to a certain extent due to artificial 
conditions. ..." But whatever the validity of these conclusions, 
which must be judged on their own merits, the situation, whether 
complicated by artificial conditions or not, was the response or, more 
properly, the over-response, to the lavishness of the Cushing out- 
pouring of crude. 

4. The Relapse of 1916. — In the latter half of 1916, gasoline 
shared in the relapse of crude with a slump east of the Rockies. 
California serenely weathered this storm, whose effects did not reach 
the Pacific slope. 

5. The Period of War Stress. — The relapse of 1916, as with crude, 
was short-lived; gasoline recovered its former price-level in early 
1917, and to the end of 1918 held a remarkably level course, as com- 
pared with the other petroleum products, and particularly with 
commodities in general. The Chicago market during this time 
showed a series of advances, reflecting, together with the situation 
there for kerosene, local instabilities of a significant order. 

A uniform price-level for gasoline during a period when prac- 
tically all other commodities were soaring is remarkable and was 
only attained by virtue of the joint-product character of gasoline, 
which permitted its potential advances to be covered by kerosene, 
fuel oil, and lubricants. Increases that might have come about in 
the last half of 1918 were forestalled by the plan of voluntary stabili- 
zation already adverted to, which reflected an indirect influence over 
gasoline and the other main petroleum products. 

6. The Stable Level of 1919. — Although petroleum production was 
stimulated by the war, the requirements for gasoline were so pre- 
dominantly domestic that the coming of peace did not create an over- 
supply of this fuel. The price of gasoline, in consequence, main- 
tained a nearly even level throughout 1919. The supply of gasoline 
was somewhat easier than in the previous year, but surplus failed 



244 PRICES OF PETROLEUM AND ITS PRODUCTS 

to accumulate sufficiently to create a significant downward revision 
in prices. 

7. The Sharp Rise of 1920. — In 1920, in common with crude, 
petroleum products, and commodities in general, gasoline enjoyed a 
marked rise in price, but a rise of relatively temperate character in 
comparison with nearly all other commodities. The advance was 
less precipitous than that for crude petroleum, and the 1920 high 
was attained later in the year. 

8. The Price Decline of Early 1921. — During the last quarter of 
1920, the highly stimulated character of oil-field operations both 
domestic and Mexican, and the continued activity of the oil-refining 
industry, in the face of the gathering storm of business depression, 
led to an easing off of gasoline prices which broke into a sharp decline 
in early 1921. As gasoline had risen to lesser heights than had its 
joint-products and its raw material, its decline was accordingly less 
drastic, although the spot price of gasoline at the small refineries in 
many instances fell below the cost of production. 

On the whole there is a notable coincidence between the price of 
crude and the price of gasoline. All the main features of the former 
are reflected in the latter, in modified form. Rarely, and only with 
local meaning, do the two courses run counter. Again there is a 
notable coincidence to be followed between gasoline prices in the 
various cities, the difference corresponding roughly to a transporta- 
tion differential in respect to the sources of raw material, compli- 
cated by the sectional character of the gasoline market. In view of 
the wide difference in production costs, the varying strengths of the 
demands for products turned out along with gasoline, and the geo- 
graphical disposition and structure of the industrial units concerned, 
the comparative uniformity in price is more striking than the minor 
divergences. But a product in universal use must normally attain a 
fairly uniform countrywide level, leaving its joint-products to level 
off the differences in production costs; and hence it is not surprising 
that gasoline shows greater price uniformity than other petroleum 
products. 

The Price of Kerosene. — Since nearly half of the kerosene pro- 
duced in the United States is exported, conditions abroad weigh 
heavily in influencing the domestic market. The average domestic 
price by years from 1913-1920 is compared graphically with the 
average export price in Fig. 114, which shows a fair correspondence 
between the two, with a tendency for the export price to lag slightly 
behind the domestic price. 

The average domestic price of kerosene, in percentages of the 1913 
figures, is shown by months for the period 1913-1921 in Table 108 and 



THE PRICE OF FUEL OIL 



245 



CENTS PER 
GALLON 

20 



15 



lO 















1 / 














/ 


// 
// 

/ 




















AVR. DOM. P 


R.—> 


7 














, 


; 








-- ~ 


-^ ^JAVR. 


EXP. 


'RICE 























plotted against the price of crude petroleum in Fig. 115. The price 
trend for kerosene shows responses 
to all the major events involved in 
the price of crude petroleum, except 
the slight reaction of 1919 during 
which period kerosene steadily ad- 
vanced in price. 

Throughout 1917, 1918, 1919 and 
most of 1920, kerosene displayed a 
sharp and strikingly consistent up- 
ward tendency. This course was 
especially notable in view of the 
demoralization of the normal foreign 
demand during much of that period. 
The explanation lies in part in war 
requirements and related causes, 
and in part in the rise of automotive 
demands for kerosene. 

The Price of Fuel Oil. — The fuel-oil market is complicated by 
extensive sales on contract, with the result that much of the output 
changes hands at prices more or less at variance with the spot quo- 

INDEX 
500 



300 
250 

200 



1914 1915 1916 1917 1918 1919 1920 1921 

Fig. 114. — Comparison of the aver- 
age export price with the average 
domestic price of kerosene by years, 
1913-1920. 



100 



50 







































































1 


















( 


\\ 












__ 




S 


\ 












/"" 




/ 


\ 














































r 








\ 










r~ 








\ 








,— 










l 








(. \ 










t 








i \ 




^KEROSE 


:ne 




• 




y\ 




i ^-^ i j 
































l>/"~ 




















• 
















,_ v 


















\ 


* h 


:rude pe 


fROLEUM 














\ i 

































1913 1914 



1915 



1916 



1917 



1918 



1919 



1920 



1921 



Fig. 115. — Relative prices of kerosene and crude petroleum by months, 1913-1921, 
in percentages of the average figures for 1913. (Average prices in 1913 = 100.) 



246 



PRICES OF PETROLEUM AND ITS PRODUCTS 



tations. In consequence, the fuel-oil chart representing an average 
of spot quotations must be allowed a larger margin of error than is 
to be accorded the other price curves in (his chapter. 

Although the variations in the price of fuel oil are numerous and 
abrupt, there is a notable conformance, both in trend and in actual 
level, to the price of crude petroleum. (See Fig. 116.) This arises 
from the fact that crude petroleum is always open to purchase as a 
natural fuel oil, and hence fuel oil proper normally seeks, and can 

INDEX 

500r 



400 

300 
250 

200 
150 

100 
90 
80 
70 
60 

50 





















































■l\ 


















a \ 












J/ 


- 






i 


. /-w-- 






L y 


«-FUEL C 


ML 






L 


1 ^ 


/V 




\y 














vv 


















x '\ 


,'\ 
















\ 


\r—s, 


















sJA 


JRUDE P! 


.TROLEU 


VI 









1913 1914 1915 1916 1917 



191: 



1919 1920 



1921 



Fig. 116. — Relative prices of fuel oil and crude petroleum by months, 1913-1921, 
in percentages of the average figures for 1913. (Average prices in 1913 = 100.) 



scarcely exceed, the level established by the price of crude. By 
virtue of this price affiliation the factors adduced to interpret the 
run of prices in regard to crude petroleum are likewise applicable to 
fuel oil. 

In addition to the influences affecting the price of fuel oil 
already reviewed under the heading of crude petroleum, there 
should be mentioned the seasonal variations in demand, which, 
involving a stronger demand in winter than in summer, create a 
tendency for prices to rise in the autumn and to fall in the spring. 
This inclination for much of the period covered in Fig. 116 was hidden 
by stronger forces, but it came definitely into play during the winter 
of 1917-1918; when an unusually severe season, a coal shortage, 



PRICE OF LUBRICATING OILS 247 

and a transportation tie-up sent fuel-oil prices, in the northeastern 
states in particular, to unprecedented levels. In consequence of a 
general policy toward substituting fuel oil for coal in growing degree, 
the demand for fuel oil became so insistent that the gasoline demand, 
which for some time had set the pace, was forced into second place, 
and the call for fuel oil, with direct reference to munitions man- 
ufacture and naval operations, became the dominant note. It was 
by virtue of these conditions more than any others that gasoline 
was freed from the responsibility of supporting the advances in the 
price of crude petroleum during this period. 

Toward the summer of 1918, while industrial operations were still 
increasing apace, the demand for fuel oil became tempered by the 
seasonal factor, while in August the plan of stabilization of oil 
prices, under the joint auspices .of the U. S. Fuel Administration and 
the Petroleum War Service Committee, came into play with due 
effect. Together these factors halted the advance, which turned 
into a decided decline when November announced the termination of 
European hostilities and threw the United States into a hesitant 
industrial mood. Thus the cycle was completed, and the motor-fuel 
demand reassumed the role of prime stimulator of the petroleum 
industry. 

During 1919 no adequate place was found for the war-stimulated 
output of fuel oil, and prices fell sharply and deeply. Gasoline 
requirements went on increasing, thus inducing a growing output of 
fuel oil even in the face of the falling market. Under these circum- 
stances, the petroleum industry projected a spectacular and effective 
campaign in favor of the general use of fuel oil for industrial and 
heating purposes. This effort began to show results toward fall and 
after the coal strike in the bituminous fields in November, the price 
of fuel oil in the single month of December recovered from its post- 
armistice depression, and by May, 1920, had reached a level fully 
50 per cent above its 1918 attainments. Then came the break in 
commodity prices and the rumblings of the industrial depression 
that was on the way; fuel oil was among the first of the petroleum 
products to respond, mildly at first and then precipitously. In a 
few brief months the entire rise of 1919-1920 was wiped out, and by 
March, 1921, the low levels of 1919 had again been reached. The 
price rout was added to in no small degree by the flood of Mexican 
oil that poured into this country in ever-increasing quantities in late 
1920 and early 1921. 

Price of Lubricating Oils. — Lubricating oils are highly fabricated 
commodities, with a wide range of grades as compared with gasoline, 
kerosene, and fuel oil. A characteristic price average for lubricants 



248 



PRICES OF PETROLEUM AND ITS PRODUCTS 



is difficult to calculate, as there is no centralized record correlating 
quantities of output with prices. A fairly satisfactory composite, 
however, may be made by taking a weighted average of five com- 
mon grades on the New York jobbing market — paraffin 903, red 
paraffin, dark steam refined, spindle No. 200, and spindle No. 150. 
To free the view as far as possible from extraneous factors, such as 
the cost of containers, the prices quoted were selected to represent 
the basic oils from which the brands coming on the market are com- 
pounded. Sales of lubricating oils are to a considerable extent made 



INDEX 

400 



300 
250 
200 

15© 















































L 


JBRICATir 


IG OILS— 


1 


,1 
\l 
















// 


l\ 










r 


'' 






\ \ 






L > 




! 








1 
1 
\ 

\ 

\ 


k 




I 


\ 
















' 


\ 


,' 
















v_ 


L 


CRUDE F 


ETROLEU 


i\i 










\ 




















\j 















1913 



1914 



1915 



1916 



1917 



1918 



1919 1920 



1921 



Fig. 117. — Relative prices of lubricating oils and crude petroleum by months, 
1913-1921, in percentages of the average figures for 1913. (Average prices 
in 1913 = 100.) 

on contract, but the spot prices reflect the market with reasonable 
accuracy. 

The relative price course of lubricating oils for the period under 
view is shown in Table 108 and plotted against the price trend of crude 
petroleum in Fig. 117. Considering the fact that lubricating oils are 
manufactured from only a portion of the crude petroleum run to 
refineries in this country, a notably close coincidence in the price 
curves of the two is to be observed, although the price of lubricants 
tends to be somewhat more stable than the price of crude petroleum. 
Up till recent years, the supply of lubricants was derived almost 



RELATION OF OIL PRICES TO COMMODITY PRICES 249 

exclusively from Eastern crudes, but a growing share is now being 
made from the Mid-Continent, Gulf Coast, and California petroleum. 
Reference to Fig. 117 shows that the price of lubricating oils held 
a fairly even course from the beginning of 1913 to early 1916, in 
the face of strong price disturbances prevailing elsewhere in the 
petroleum industry. In April, 1916, there came a sharp rise in price- 
level, following the initial recovery of the crude market from the 
Cushing depression and the growth of orders for future delivery. 
For the remainder of 1916 and practically all of 1917, lubricants 



SOOf 




1913 



1914 1915 



1916 



1917 



1918 



1919 



1920 



1921 



Fig. 118. — Relative prices of crude petroleum, petroleum products, and all 
commodities by months, 1913-1921, in percentages of the average figures 
for 1913. (Average prices in 1913 = 100.) 



remained stable, showing few of the fluctuations elsewhere taking 
place. The beginning of 1918, however, saw an abrupt ascent to 
prices well above those of 1916-1917, with further advances in early 
1918 to twice the pre-war level, to be explained by a combination of 
circumstances — increases in the cost of high-grade crude, general 
domestic conditions of stress and high costs, transportation con- 
gestion, shortages in special grades, and the ever-increasing growth 
of demand. From then on to late 1919 there was little change in 
level. 



250 



PRICES OF PETROLEUM AND ITS PRODUCTS 




GO 


a 


2 o 


C 


5 = 


■m 


B> 


a 




42 


. "- 1 




J^t 


T3 


*Sg 


C 


s 


Cj 


s 

3 







3 


o t- 






Fh 




+* 


° s = 




fc = <=> 


<D 




T3 




3 




Eh 


o w 




S - o 


o 








0> 




> 


ri -1 


(II 


£ ° 


<D 




O 








H 


UJ 
CO 


1 




1 

OS 




!-H 


z 


T-H 


=5 


u 






o 


Ph 



VALUE RELATIONSHIPS OF THE PETROLEUM INDUSTRY 251 



In early 1920, in sympathy with markets in general, the price of 
lubricants rose to unprecedented heights, surmounting the whole 
price structure of petroleum. But this increase was short-lived; 
lubricants proved to be closely 
sympathetic in price with 
commodities in general and 
followed the country's price- 
level downward during its 
entire descent to early 1921, 
thus anticipating by several 
months the fall in price of 
crude petroleum. This im- 
mediate reaction to the in- 
dustrial depression is readily 
understandable in view of 
the far-reaching employment 
of lubricants in industry. 

Relation of Oil Prices to 
Commodity Prices. — In order 
to bring the trend of prices 
in the petroleum industry 
into a still more summarized 
view, the relative prices for 
(a) crude petroleum, and (6) 
petroleum products (weighted 
average of gasoline, kerosene, 
fuel oil, and lubricants), are 
plotted in Fig. 118 against 
the price-level of all commo- 
dities as determined by the 
U. S. Bureau of Labor Statis- 
tics. An interesting confor- 
mance between the three 
curves is to be observed, 
petroleum products tending 
to take a position in sym- 
pathy with the trend of crude 
petroleum on the one hand, 
and with all commodities 

on the other. The reaction of both crude petroleum and petroleum 
products to the decline of commodity prices in 1920-1921 is worthy 
of special study, with particular regard to the sequence in the decline 
of the three items. It is an open question, however, whether petro- 




1917 



1918 1919 



1920 



1916 

Fig. 120. — Value of the domestic production 
of crude petroleum and its principal prod- 
ucts by years, 1916-1920. 



252 



PRICES OF PETROLEUM AND ITS PRODUCTS 



leum prices will follow commodity prices throughout the entire 
future course of the latter, since technical factors peculiar to 
petroleum are shaping up which may ultimately create a price 
divergence. 

The elevation of various groups of prices in 1920 above the- pre- 
war level of 1913 is illustrated in Fig. 119. The price-level of gaso- 
line is especially noteworthy in this connection. 

The Value Relationships of the Petroleum Industry. — The aver- 
age prices calculated for the present chapter, in conjunction with 
production statistics available from official sources, afford the means 
for evaluating the output of the American petroleum industry. 
The value of the crude petroleum and the principal petroleum 
products turned out in the United States by years from 1914-1920 
is accordingly presented in Table 111. 

Table 111. — Estimated Value of the Output of the American Petroleum 
Industry by Years, 1914-1920 







(In 


millions of dollars) 






Year 


Crude 
Petroleum 


Gasoline 


Kerosene 


Fuel Oil 


Lubricating 
Oils 


Total of Four 
Products 


1914 


214* 


125f 


97 f 


84 f 


56 f 


362 f 


1915 


179* 


...4 


...4 


...4 


...4 


...4 


1916 


331* 


389 


115 


116 


114 


734 


1917 


523* 


587 


147 


243 


147 


1124 


1918 


704* 


775 


186 


352 


260 


1573 


1919 


850 


879 


298 


291 


273 


1741 


1920 


1520 


1294 


396 


580 


514 


2784 



* U. S. Geological Survey. 

t 1914 Census of Manufactures. 

J Omitted because of the lack of production statistics for 



1915. 



The figures appearing in Table 111 are shown in graphical form 
in Fig. 120, in which a comparative view may be gained of the 
increase in value of crude petroleum and its principal products over a 
period during which the industry enjoyed a mounting output coupled 
with a rising price-level. 



CHAPTER XVIII 

RELATION BETWEEN PRICE AND PRODUCTION OF CRUDE 

PETROLEUM 

The production of crude petroleum depends upon many related 
variables such as strength of demand, difficulty of exploitation, 
intensity of search, element of chance, and many others. The inter- 
play between production and the composite of these variable factors 
is reflected in price, and a comparison of price with production 
should yield results of value, although the problem of correlation is 
too complex to be fully solved with available data and methods of 
analysis. The present chapter attempts to measure the two key 
elements in the crude petroleum situation in the United States and 
to establish so far as possible the degree to which a relationship 
between the two exists. 

The basis of the investigation is quantitative data on production 
and price, and qualitative data on all the other factors commonly 
recognized as entering into the situation. The period investigated 
is from 1913 to 1920, inclusive. The production data are the figures 
on marketed production compiled by the U. S. Geological Survey; 
the price data represent a weighted average of the average monthly 
price of five grades of crude petroleum, the original quotations being 
the posted price at the wells as given by the National Petroleum 
News. 1 The data on production and prices are presented in Table 
112. The data on the price-level of all commodities are the index 
numbers calculated by the U. S. Bureau of Labor Statistics and 
published in the Monthly Labor Review. 

Trend of Production, Consumption, and Price by Years. — A 
broad picture of the production, consumption, and average price of 
crude petroleum in the United States by years from 1913 to 1920 is 

1 The five grades are Pennsylvania, Illinois, Kansas-Oklahoma, Gulf Coast 

(Humble) and California (14°-17.9°), and the weighted average is derived 

P+I+2K+G+C 

according to the formula, . A more elaborate method of 

& 6 

weighting was tried, whereby the prices were combined in proportion to the 

production of the respective fields, but sufficient divergence from the simpler 

method was not found to warrant the more laborious calculations. 

253 



254 



RELATION BETWEEN PRICE AND PRODUCTION 



Table 112. — Marketed Production and Average Price of Crude Petroleum 
in the United States by Months, 1913-1920 



(Production 


in millions of barrels. Price in dollars per 


barrel) 






1913 


1 

1914 


1915 


1916 


Prod. 


Price 


Prod.* 


Price 


Prod.* 


Price 


Prod. 


Price 


January . . 
February . 
March. . . . 

April 

May 

June 

July 

August. . . 
September 

October. . . 
November 
December 

Year 


19.5 

18.2 
20.4 

20.6 
21.3 
20.9 

21.5 
21.1 

20.5 

21.3 
20.8 
21.7 

248 


1 

0.99 
1.08 
1.14 

1.13 
1.14 
1.14 

1.15 
1.18 

1.19 

1.19 
1.19 
1.21 

1.14 


21.9 
20.1 
23.7 

22.9 
24.2 
23.8 

23.7 
20.6 
20.1 

22.4 
21.1 
21.0 

266 


1.22 
1.23 
1.21 

1.14 
.95 

.88 

.86 
.85 
.76 

.71 
.70 
.70 

.93 


21.0 
20 . 3 
22.7 

26.1 

22.7 
23.4 

24.8 
23.7 
23.4 

24.0 
23.8 
25.1 

281 


.71 

.72 
.66 

.64 
.63 
.63 

.63 
.67 
.83 

.88 

.92 

1.05 

.75 


23 1 

22.7 
25.5 

24.0 
26.0 
25.5 

25.3 

25.2 
25.3 

26.7 
25.3 
25.9 

301 


1.23 
1.31 
1.40 

1.48 
1.49 
1.49 

1.47 
1.27 
1.15 

1.17 
1.21 
1.33 

1.33 




1917 


1918 


1919 


1920 


Prod. 


Price 


Prod. 


Price 


Prod. 


Price 


Prod. 


Price 


January. . 
February . 
March. . . 

April 

May 

June 

July 

August. . . 
September 

October. . 
November 
December 

Year 


26.3 

23.7 
28.0 

27.1 
27.6 
27.4 

29.1 
29.7 
29.6 

30.4 

28.7 
27.6 

335 


1.49 
1.67 

1.68 

1.68 
1.70 
1.72 

1.74 
1.74 
1.74 

1.94 
1.94 
1.94 

1.77 


27.3 
25.9 

29.7 

29.0 
30.4 
29.9 

31.8 

30.6 
30.4 

31.3 
29.9 
29.8 

356 


1.98 
2.01 
2.10 

2.20 
2.24 
2.24 

2.24 
2.25 
2.33 

2.33 
2.33 
2.33 

2.22 


30.2 

26.9 
30.2 

29.4 
30.0 
31.6 

33.9 
33.9 
33.7 

33.3 
32.1 
32.5 

378 


2.30 

2.24 
2.22 

2.19 
2.19 
2.19 

2.19 
2.19 

2.24 

2.25 
2.31 
2.49 

2.25 


33.8 

32.7 
35.8 

35.6 
36.5 
36.9 

38.2 
39.1 
37.5 

39.6 
38.7 
39.0 

443 


2.86 
2.96 
3.42 

3.51 
3.55 
3.55 

3.57 
3.57 
3.57 

3.57 
3.56 
3.50 

3.44 



Monthly figures for 1914 anfl 1915 are approximate. 



TREND OF PRODUCTION 



255 



MILLIONS OF 

BARRELS AND 

CENTS PER BBL 

600 



500 



presented in Fig. 121, in which the items named are plotted by years 
on semi-logarithmic 
paper, and straight 
lines fitted to the 
three curves to in- 
dicate the average 
trends. The data 
on which Fig. 121 
is based, together 
with corresponding 
index numbers, ap- 
pear in Table 113. 
It will be observed 
that the average 
annual increase 
over the past eight 
years has been ap- 
proximately 9.5 per 
cent for production, 
12 per cent for con- 
sumption, and 22 
per cent for price. 
It will be noted, 
further, that in 
1920, as compared 
with 1919, pro- 
duction increased 
17 per cent; consumption, 27 per cent; and price, 53 per cent. 

Table 113. — Trend of Production, Consumption and Average Price op 
Crude Petroleum in the United States by Years, 1913-1920 




Fig. 121. 



-Trend of production, consumption, and price 
of crude petroleum, 1913-1920. 



Year 


Production, 

Millions of 

Barrels 


Con- 
sumption, 
Millions of 
Barrels 


Average 

Price, 

Dollars per 

Barrel 


Production, 
Index Nos. 


Con- 
sumption, 
Index Nos. 


Average 

Price, 

Index Nos. 


1913 


248 


262 


1.14 


100 


100 


100 


1914 


266 


261 


.93 


107 


100 


82 


1915 


281 


273 


.75 


113 


104 


66 


1916 


301 


319 


1.33 


121 


122 


117 


1917 


335 


378 


1.77 


135 


144 


155 


1918 


356 


413 


2.22 


144 


158 


195 


1919 


378 


418 


2.25 


152 


160 


197 


1920 


443 


531 


3.44 


179 


202 


302 



256 



RELATION BETWEEN PRICE AND PRODUCTION 



Relation of Production and Price by Months. — The relationships 
shown in Fig. 121 are analyzed in greater detail in Fig. 122, in which 
the data given in Table 112 are plotted on semi-logarithmic paper, 
with the trend lines as determined in Fig. 121 superimposed upon the 
curves. The trend lines show a reasonably satisfactory fit and indi- 

SCALE 

450 

400 
350 
300 
250 
200 

150 



100 
90 
80 
70 
60 
50 



Fig. 122. — Relation of price to production of crude petroleum by months, 

1913-1920. 

cate that price, in general, has increased at double the rate character- 
izing the increase in production. If the trend lines are looked upon 
as representative of the normal progression of the items, the wave- 
like advance of the price curve will claim attention — the reaction 
to the Gushing overproduction, the rebound from the price recovery 
of 1915-1916, the 1919 reflection of the post-war adjustment and the 



























































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19 


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1918 






1919 






1920 





(AV. PRICE FOR 1913 =100) 



INDEX 

400 

300 
250 
200 

150 
100 



























































































































































































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13 






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14 






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19 


16 






19 


17 






19 


18 






l£ 


19 






19 


JO 





Fig. 123. — Relation of price level of crude petroleum to average of all commodities 

by months, 1913-1920. 

flush production of North Texas, and the sharp rise of 1920 followed 
by a less marked increase in production. 

Comparison of Price of Petroleum with all Commodities. — The 
rise in price of crude petroleum over the period shown is due to a grow- 
ing demand, an increasing cost of exploitation, and a general advance 
in the country's price-level. The last-named factor may be measured 



SECULAR TREND OF PRODUCTION 



257 



by plotting index numbers calculated from the average price of crude 
petroleum against index numbers representing the average whole- 
sale price of all commodities as determined by the U. S. Bureau of 
Labor Statistics. These two items are shown in comparative form 
on a semi-logarithmic scale in Fig. 123. Two features are outstand- 
ing: The several price reactions which temporarily depressed the 
price of crude petroleum below the level of all commodities ; and the 
sharp rise in the price of petroleum above all commodities in 1920. 

The trend of the price relationship between petroleum and all 
commodities may be more strikingly shown by plotting the average 



INDEX 
80 



70 



118 
105 

















































r 






























































































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P 


PF 


1 

: of c 

TROLE 


iUD 

JM 


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\ 


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v7 
















































































19 


13 






19 


14 






1915 


191€ 






191 


J 




19 


18 






1915 


3 


192 






Fig. 124. — The average price of crude petroleum plotted as ordinates of the price 
level of all commodities, by months, 1913-1920. 



price of petroleum against the price-level of all commodities taken as 
a horizontal line. This method of plotting accentuates the degree 
to which the price of crude petroleum departed from the country's 
price level in 1920 and serves to explain in part the recession in crude 
petroleum prices that came in early 1921. (See Fig. 124.) 

Secular Trend of Production. — There are two simple methods of 
interpreting the trend of a series of items, such as production or price. 
The first method is that of plotting the series on semi-logarithmic 
paper and fitting a straight line to the curve. This method, of course, 
interprets the trend as a geometric progression (see Figs. 121 and 122). 
A second method is that of plotting the series on a natural scale and 



258 



KKLATIOX BETWEEN PRICE AND PRODUCTION 



fitting a straight line to the curve; in this instance, however, the 
trend line represents an arithmetic progression in which the growth 
is by addition instead of by percentage increase. Fig. 125 shows the 
production of crude petroleum interpreted by the second method, in 
which the line of secular trend represents a monthly increment of 
179 thousand barrels. Fig. 125 emphasizes to a greater degree than 
does Fig. 122 the 1920 rise of production above the line of "normal" 
trend. 

Secular Trend of Price. — In Fig. 126 the price trend of crude 
petroleum is also interpreted in the manner described in the pre- 
ceding paragraph. Figs. 125 and 126 should be carefully compared, 



MILLIONS 

OF 
BARRELS 
40 
39 

38 
37 
36 
35 
34 
33 
32 
31 
30 
29 
28 
27 
26 
25 
24 
23 
22 
21 
20 
19 
18 















































































-Ah 


























Pi 


























r^ 


























7 




















































j ^^ 






















r 


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t^ 






















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sr 






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1 












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Wi 




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1913 191< 


X 


19 


15 


19 


1G 


191' 


r 19 


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1919 




1920 



Fig. 125. — Monthly production of crude petroleum in the United States, 1913- 
1920, together with line of secular trend representing the "normal" rate 
of increase. 



as they illustrate the price-production relationship on the assumption 
that the increases in each item are arithmetic. 

Correction of Curves. — If the two lines of secular trend appearing 
respectively in Figs. 125 and 126 be regarded as the normal tendency 
of production and price during the period under study, the deviations 
from these lines in each instance will presumably reflect transient or 
new factors entering into the relationship. A comparison of the 
deviations from secular trend is therefore suggested. The data 
underlying the two curves are consequently recalculated so as to 
show only the deviations from secular trend, the data for production 
being still further corrected for seasonal variations, and the results 
plotted in Fig. 127. Roughly speaking, Fig. 127 eliminates the sys- 



EXPLANATION OF CURVE CORRECTION 



259 



tematic upward trend in production and price, and shows merely the 
fluctuations from normal. 

The plot of the corrected curves illustrated in Fig. 127 shows a 
wide divergence between production and price in 1915, following the 
flush production of the Cushing Pool; a resonably good coincidence 
in 1916, 1917, and 1918, especially in the latter two years; a comple- 
mentary spread in the latter half of 1919, resulting mainly from the 
flush production in North Texas; and an upward divergence in 1920, 
with price rising roughly to three times the level of production. The 
chart is thought to represent an accurate measure of the extent to 



350 
325 
300 
275 
250 
























































































































































































/ 






























































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175 

150 

125 

100 

75 

50 

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19 


13 






M. 


14 






19 


15 






19 


16 






19 


17 






19 


18 






19 


19 






19 


20 





Fig. 126. — Monthly average price of crude petroleum in the United States, 
1913-1920, together with the line of secular trend representing the "normal" 
rate of increase. 

which the production of crude petroleum was overstimulated by the 
unduly sharp price rise in the first quarter of 1920, and to rather 
clearly forecast the conditions of oversupply that characterized 
the closing months of the year and led to the price cuts that started 
in December and became prominent early in 1921. 

Explanation of Method of Curve Correction.— The method fol- 
lowed in the preceding section was suggested by a number of inves- 
tigations conducted by the Harvard University Committee on Eco- 
nomic Research under the editorship of Warren M. Persons. 1 The 

1 See especially: An Index of General Business Conditions, The Review 
of Economic Statistics, April, 1919; Indices of Business Conditions, Ibid.. 



260 RELATION BETWEEN PRICE AND PRODUCTION 



calculations involved are rather lengthy and, for want of space, are 
not given here. 

The seasonal variation in the production of crude petroleum 
determined by the method followed by the Harvard University 
Committee on Economic Research, is shown below, as this factor 
may be of general use in correcting monthly production figures. 
As is obvious, production fluctuates according to the number of 



INDEX 

50 

40 
30 
20 
10 



Or 















































































































































A 




























































J 


\ 














































x 


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? 


PR 


JUL 

1 


8TI 


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X 


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V 


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s 


/ 






























































s 


J 














































19 


13 






19 


14 






19 


5 






19 


16 






19 


17 






19 


18 






19 


19 






1920 





Fig. 127. — Production and average price of crude petroleum in the United States 
by months, 1913-1920, corrected so as to show the deviations from the 
"normal" rate of increase. 

days in the months, and is relatively more vigorous in the warm 
months than in the winter. Calculations based on monthly data for 
the eight-year period, 1913-1920, yield the following index numbers 
representing the average variations of seasonal origin: 

Table 114. — Index Numbers Showing the Seasonal Variations in the 
Production of Crude Petroleum, Based on the Years, 1913-1920 



January . 
February 
March . . 

April 

May.... 
June. . . . 



99 


1 


91 


3 


102 


4 


99 


8 


102 





101 


9 



July 

August 

September.. . 

October 

November. . . 
December. . . 

Average . 



105.1 
103.7 

98.7 

101.6 
96.5 

98.2 

100 



January, 1919; E. E. Day, An Index of the Physical Volume of Production, 
ibid., September, October, November and December, 1920. 



COMPARISON OF CORRECTED CURVES BY YEARS 



261 



Comparison of Corrected Curves by Years. — In order to concen- 
trate the results given above, with a view to eliminating all details, 
the yearly production, consumption, and price of crude petroleum 
for the period 1913-1920 were recalculated and the secular trend 
removed. The results were then plotted in Fig. 128, which shows the 




Fig. 128. — Production, consumption, and average price of crude petroleum in 
the United States by years, 1913-1920, corrected so as to show the deviations 
from the "normal" rate of increase. 

relative fluctuations of the three items from normal. While a math- 
ematical treatment of this kind must be interpreted with caution, the 
chart would tend to indicate that in 1920 price advanced 30 per cent 
higher than was necessary and led to a production of some 35 million 
barrels of crude oil in excess of the quantity actually needed. 



CHAPTER XIX 

THE BEARING OF AUTOMOTIVE TRANSPORTATION UPON 
THE OIL INDUSTRY 

There is no industrial parallel to the growth in output of pas- 
senger cars, trucks and tractors in the United States during the past 
ten years. The expansion of automotive transportation is one of 
the remarkable features of the twentieth century. The number of 
cars, trucks and tractors produced annually in the United States 
from 1910 to 1920 is shown in Table 115. 

The approximate number of motor vehicles (passenger cars and 
trucks) registered during each year from 1912 to 1920 is shown in 
tabular and graphic form, according to states, in Fig. 129. Unfor- 
tunately the passenger cars and trucks are not separately registered 
in many of the states, nor is there any accurate inventory of the 
number of tractors in operation, but a rough apportionment of the 
automotive units into passenger cars, trucks, and tractors may be 
made on the basis of the production figures and such registration 
data as are available. The results of such a division are given in 
Fig. 130, together with the production figures, the chart therefore 
being an approximate measure of the remarkably rapid development 
of the automotive field. In rough terms, automotive transportation 
has grown at a rate of 40 per cent a year over the past decade. The 
sudden rise of such a factor has exercised a profound effect upon the 
petroleum industry. 

Rapid Diversion of Oil Products into Automotive Channels. — 
Automotive transportation, of course, depends upon the oil industry 
for its supply of fuel and of lubricants. The growth in demand for 
these products caused by the expansion of automotive transportation 
has rapidly encroached upon the supply of oil products until in 1920 
approximately 25 per cent by volume and 49 per cent by value of the 
output of the American oil industry was diverted into automotive 
channels. In the past ten years the quantity of fuel and lubricants 
annually consumed by automotive transportation in this country 
has increased from 3 million barrels to approximately 100 million 
barrels; while during the same period the value of the oil products 
consumed each year by automotive transportation has advanced 

262 



MAJOR FINANCIAL RETURNS 



263 



from 9 million dollars to approximately 1 billion dollars. To such 
an extent has the oil industry come to be the support of automotive 
transportation. Fig. 131 shows the rapid encroachment of automotive 
requirements upon the output of the oil industry. 




Motor Vehicle Registration 1912 to 1920 

1912 1913 1914 1915' 1916 1917 1918 1919 1920 

Alabama 3,385 5,435 8,078 11,925 21,636 32,873 46,17V 68,898 74,637 

Arizona .. 1624 3,098 5,040 7,318 12,124 19,890 23,905 28,979 34,559 

Arkansas 2 250 3,000 5,642 8,021 15,000 28,693 41,458 49,450 59,082 

California 88,699 60,000 123,516 163,795 232,440 306,916 364,800 477,450 568,892 

Colorado 8,950 13,135 17,756 27,568 43,296 66,850 83,630 104,865 128,951 

Connecticut .... 24,101 27,189 33,009 43,985 61,855 85,724 92,605 109,651 119,134 

Delaware . 1.732 2,350 3,050 4,657 7,102 10,700 12,955 16,152 18,300 

Dl$t. of Col 1,732 2,373 4,833 8,009 13,118 15,493 30,490 35,400 9,712 

1,749 2,372 3,368 10,850 20,718 27,000 54,186 55,400 '73,914 

Georgia 19,120 18.500 20.916 25.671 47,579 70,357 99,800 127,326 144,422 

Idaho .. .. 2 500 2,173 3,346 7,071 12,999 24,731 32,289 42,220 60,875 

' . 68 073 94,656 131,140 180,832 248,429 340,292 389,620 478,438 568,754 

54.334 47,000 66,400 96,915 139,317 192,192 227,160 277,255 332,707 

... 47,188 75,088 112.134 152.134 193,602 254,317 278,313 363,857 437,300 

Kansas 22,000 34,366 49,374 72,520 112,122 159,343 189,163 227,752 265,396 

Kentucky 5,147 7,210 11,746 19,500 31,700 47,416 65,870 90,641 112,685 

Louisiana 7,000 7,200 12,000 11,380 17,000 28,394 40.000 51,000 66,000 

Maine 7,743 10,570 15,700 21,545 30,972 41,499 40,372 63.425 62.907 

Maryland ... 10,487 14,254 20,213 31.047 44.245 60.943 74,666 95,634 '116,341 

Massachusetts .. 50,132 62,660 77,246 102,633 136,809 174,274 193.497 247,183 304,631 

Michigan 39,579 54,366 76,389 114,845 160,052 247.006 262,125 325,813 412.71' 

29,000 37,800 67,862 93.269 46,000 54,009 204,458 259,743 65,517 

Mississippi 2.895 3,000 5.964 9.669 25.000 36.600 48.400 45,030 63,484 

Missouri . .. 24,379 38,140 54,468 76.462 103,587 147,528 188,040 244,363 296,919 

Montana 2.000 5.686 10,172 14,499 24,440 42,696 61,037 55,325 60.646 

Nebraska 33,861 25,617 40,529 59,140 100,534 148,101 175,409 192.000 223.009 

Nevada ... 900 1,131 1,487 2,009 4,919 7.160 8,159 9,305 10,464 

New Hampshire 5,764 7,420 9,571 13,449 17,508 22.267 24.817 31,625 34,«»0 

New Jersey ... 43.056 48.892 60.247 78,232 104.341 134,964 155,519 190,373 227,737 

New Mexico .. 911 1,721 2.945 5,100 8,228 8,457 15.000 18,077 22.109 

New York 107 262 134 405 169,966 234,032 317.866 411,567 463.758 571,662 669,290 

North Carolina.. 6J78 10,000 14.677 21,000 33,904 55,950 72,313 109,017 140,860 

North Dakota .. 8,997 13,075 15,701 24,908 40.446 62.993 71.627 82.885 90,840 

Ohio ' 63.066 86.054 122.504 181.332 252.431 346,772 412,775 511,031 615,397 

Oklahoma 6,524 7,934 13,500 25.032 52.718 100,199 121,500 144,500 204,300 

Oreaon 10 165 13.957 16,447 23,585 33,917 48.632 63,324 83,332 103,790 

Pennsylvania". 69 357 76,178 112.854 160,137 230,578 325.153 394,188 482,117 570.164 

Rhode Island . 8,565 10,294 12,331 16,362 21,406 37,046 36,218 44,833 50,375 

South Carolina 10.000 11.500 14,500 15,000 19,000 39.527 55.492 70.143 92.819 

South Dakota 14.481 14,578 20.929 28.784 44,271 67,158 90,521 104,628 120,398 

35 187 54,362 19,769 7,618 30.000 48,000 63.000 80.422 101,852 

.. 35.187 54,362 64,732 90,000 197.687 213 334 251.118 331.310 427.693 

Utah .. 2.576 4.021 2.253 9.177 13.507 24,076 32.273 35,236 42,578 

Vermont • 4 283 5 918 8,256 11,499 15.671 20.369 22,655 26,807 31.628 

Virginia ....... 5>60 9,022 14,002 21,357 35,426 55.000 72 228 94,120 134 000 

Washington ... 13.990 24.178 30,253 38,823 60.734 91.337 117.278 148,775 '173,920 

W. Virginia ... 5,349 5,088 6.159 13.279 20.571 31.300 38.750 50,203 78,862 

Wisconsin 24,578 34,646 53,161 79,791 115.637 164,531 196.844 236,981 293.298 

Wyoming 1,300 1,584 2,428 3,976 7,125 12,523 16,200 21,371 23.92S 

Totals 1,033,096 1,287,568 1,768,720 2.479.742 3,584,567 4,992.152 6,105.974 7,596.503 8,932,458 

•Estimated. 



600,000 



500,000 



--400.0CO 



300,000 



200,000 



100,000 



50.000 



5 B o £ 5 o o >. S < £ 2 ui o s 3 < -: p * £ i--> 3 d fc °. 



Fig. 129.— Motor vehicles in the United States by years, 1912-1920; after 

Automotive Industries. 



Major Financial Returns from Automotive Requirements. — At 

the present time approximately one-half of the revenue of the average 
oil company is derived from the sales of products going into automo- 
tive transportation. This proportion, however, is increasing, since 



264 THE BEARING OF AUTOMOTIVE TRANSPORTATION 



automotive requirements are expanding at a greater rate than 
counter-demands, with the result that a rapidly growing encroach- 
ment upon the remaining 50 per cent is coming into evidence. 



THOUSANDS 
OF CARS 

10,000 

9,000 

8,000 
7,000 




1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 

Fig. 130. — The growth of automotive transportation by years, 1910-1920. 



Future Demands of Automotive Transportation. — The 1910-1920 

rate of growth of automotive transportation which approximated 
40 per cent per year represents a rapidity of growth that can not 
be expected to continue unabated; a careful inspection of Fig. 130, 
indeed, reveals the tendency of the trend lines to modify their slopes 



CONSUMED BY 

ALL OTHER 
REQUIREMENTS 



FUTURE DEMANDS OF AUTOMOTIVE TRANSPORTATION 265 

toward the end of the decade represented. A careful analysis of 
the factors entering into the growth of automotive transportation, 
however, suggests that 
while the exuberant expan- 
sion characteristic of the 
past decade will undoubt- 
edly become more temper- 
ate, a substantial and con- 
tinuous growth may be ex- 
pected, barring the inability 
of the petroleum industry 
to maintain a supply of 
motor-fuel and lubricants 
at a favorable price. Refer- 
ence to Fig. 130 will bring 
out the fact that as the rate 
of expansion of passenger 
cars begins to taper off, the 
growth of motor trucks 
comes forward as a sup- 
porting factor; and as 
the expansion in this field 
begins to moderate, the 
growth of tractors comes into prominence. 



3UAI\ 


TITY 




VALUE 
















%p.fy'^i 






/ 
/■ 




it 


ss 


%IP 






WmW 




m 







CONSUMED BY 
AUTOMOTIVE 
TRANSPORTATION 



Fig. 131. — Quantity and value of petroleum 
products consumed by automotive transpor- 
tation compared with the consumption by all 
other requirements in 1920. 



Table 115. — Production of Cars, Trucks and Tractors in the United States 

by Years, 1910-1920 

(In thousands) 



Year 


Passenger Cars * 


Trucks * 


Tractors 


1910 


181 


6 


4.5 


1911 


199 


11 


7.4 


1912 


356 


22 


11.4 


1913 


462 


24 


7.4 


1914 


544 


25 


10.4 


1915 


819 


74 


22 


1916 


1494 


90 


28 


1917 


1741 


128 


63 


1918 


926 


227 


135 


1919 


1658 


316 


175 


1920 


1883 


322 


200 

l 



* Data from National Automobile Chamber of Commerce. 



2G6 THE BEARING OF AUTOMOTIVE TRANSPORTATION 




EFFECT UPON GASOLINE 267 

The approach of passenger cars to a number representing the sat- 
uration point of the country does not therefore mean a limitation 
to the whole field of automotive transportation. The growth of 
truck haulage has no such saturation point. With a bountiful and 
cheap supply of fuel the motor truck can expand to a further degree, 
finally enlarging its scope of activity from the field which character- 
izes it at the present to a point of coordination with railway trans- 
portation which will make it an integral part of that countrywide 
system. 

Tractors likewise occupy a field which is in its infancy. Mechan- 
ical tillage and mechanical work on the farm represent the only 
solution in sight for the growing food requirements of a large popu- 
lation and for the steady migration of labor from rural districts to 
industrial centers. The aeroplane also is a type of automotive 
transportation whose future would appear to be important should 
no limitation of fuel supply intervene. 

On the whole, the future demands of automotive transportation 
appear to be insatiable. The requirements of this field present to 
the oil industry an opportunity and an obligation which cannot be 
exaggerated. Automotive demands will either make the oil industry 
greater than it is at present, or they will place a burden upon the 
oil industry which it cannot support. 

Effect of Automotive Requirements upon Oil Products. — Already 
the rapid growth of automotive requirements has had a far-reaching 
effect upon the character and volume of products turned out by the 
oil industry. Gasoline has been changed from a minor to a major 
product. Kerosene has been raised in price, and gas oil is in course 
of diversion from the open market. Fuel oil has been seriously cut 
into, and the supply of lubricating oils, especially those of heavier 
body, has been heavily burdened. These may be regarded as the 
initial effects that automotive transportation may be expected to 
exert in growing degree upon the oil industry. It may be worth 
while to review these consequences in somewhat greater detail. 

Effect upon Gasoline. — Once a reject in connection with the 
manufacture of kerosene, gasoline in the aggregate is now the most 
profitable product turned out by the oil industry. In the past ten 
years its output has grown from a quantity representing scarcely 6 
per cent of the crude oil consumed in the United States to a present 
volume which represents 22 per cent. The mounting demand for 
gasoline has not only stimulated the output of crude petroleum, but 
has also dictated refinery expansion and changes in refinery technique 
until now it not only involves practically all of the natural gasoline 
extracted from the crude petroleum, but draws upon outside sources 



268 THE BEARING OF AUTOMOTIVE TRANSPORTATION 




EFFECT UPON KEROSENE 269 

of gasoline such as that won from natural gas. In the past few 
years also, cracking processes of distillation have been developed 
and changes in the character of the gasoline supply to the inclu- 
sion of material once marketed as light kerosene have come into play. 
In addition blends of gasoline and naphtha with benzol and alcohol 
are coming on the market, thus indicating the opportunity for incre- 
ments to the gasoline supply from extraneous chemical sources. 
All of these factors are the direct resultant of the growth of automotive 
transportation. Without a rapidly increasing demand for gasoline, 
these changes would not have become necessary and would not have 
appeared. 

Effect upon Kerosene. — Once the major product of the oil industry 
both in volume and value, kerosene has been subordinated to a 
secondary position. In spite of a growing consumption of crude 
petroleum the output of kerosene has remained nearly stationary, 
the potential increase going instead into the production of gasoline. 
The supply of kerosene also, once largely confined to lighting and 
heating, is now undergoing encroachment by the internal combustion 
engine. Considerable quantities of kerosene are used in stationary 
engines, boats and tractors. The domestic market for kerosene has 
thus come largely to lose its former seasonal character. The peak of 
the kerosene demand has been lost in the leveling effect of auto- 
motive requirements. 

Effect upon Gas and Fuel Oil. — The mounting requirements for 
gasoline have forced the expansion of cracking processes of distillation 
using gas oil to such an extent that the supply of this product, once 
catering dominantly to the manufacture of city gas, has become insuf- 
ficient for meeting the combined demand and a serious shortage 
of gas oil is under development. This latent stringency may be 
expected to increase until the gas industry is forced to adapt its 
practice either to get along without gas oil, or as a temporary expe- 
dient to make use of the heavier varieties of fuel oil. A continued 
growth of cracking is to be expected, and this expansion will not 
only quickly preempt the available gas oil but will gradually encroach 
upon the whole fuel oil supply to such an extent as to curtail many 
of the industrial and transportation demands now dependent upon 
this product. 

Effect upon Lubricants. — The requirements of automotive trans- 
portation have injected a new and rapidly growing demand into the 
country's output of lubricating oils. While crude petroleum is 
produced in excess of lubricating needs, expansion in the production 
of lubricating oils is predicated upon extensive changes in refinery 
equipment. During the past few years, the addition of automotive 



270 THE BEARING OF AUTOMOTIVE TRANSPORTATION 

requirements to the normal industrial demand has expanded the 
need for lubricants beyond the capacity of the types of crudes 
formerly regarded as essential to the manufacture of the best 
products, with the result that growing emphasis is falling upon 
the asphalt ic crudes which in the early days of refining were not 
regarded as suitable raw material for the fabrication of lubricants. 
During the early part of 1920, the rapid growth of the automotive 
demand resulted in a shortage of the heavier-bodied lubricating oils 
such as enter significantly into the make-up of motor-oils. These 
effects in the long run may be expected to continue and to have still 
further influence upon refinery technique and upon trade practice 
in respect to compounding the oils employed. 

Creation of a Motor-fuel Problem. — The growth of automotive 
requirements in excess of a corresponding rate of expansion on the 
part of the oil industry has created a maladjustment between the 
motor-fuel supply and the average automotive equipment for hand- 
ling the fuel. In an attempt to maintain sufficient gasoline, the 
character of the gasoline has been permitted to change until now it is 
somewhat less adapted to the engine than was once the case. This 
lack of balance between engine and fuel has created a problem which 
is receiving the active attention of the automotive industry and 
constitutes a field of growing importance. It is rapidly coming to 
be evident that increasing difficulty will be met in maintaining the 
supply of motor-fuel without a greater degree of correlation between 
the fuel and the engine than has yet been attained. The accomplish- 
ment of a parallel development of fuel and engine to the maximum 
easement of the fuel supply constitutes in simplest terms the motor- 
fuel problem. 

Creation of a Dilution Problem. — The rapid growth of automotive 
requirements in respect to gasoline, entailing a physical change in 
the character of the latter, has had a secondary effect upon the lubri- 
cating oil used in the internal combustion engine. The heavy ends 
of the gasoline, increasing in quantity as the volatility of the com- 
mercial supply of gasoline decreased, have tended more and more to 
pass through the automotive apparatus incompletely burned and to 
dilute the crank-case oil, with serious effects upon the efficiency and 
the life of the engine. This outcome has brought sharply to the fore 
the necessity of regarding motor-oil and motor-fuel as comple- 
mentary products, each to be adapted to the character of the other, 
and the two to be coordinated with the engine type. This matter 
offers an opportunity for constructive work of importance. 

Creation of a Peak-load Problem. — The growing demand for 
gasoline has been complicated by the seasonal character of the 



CREATION OF A PEAK-LOAD PROBLEM 271 

requirements. As is well known, the quantity of gasoline needed 
for the months of July and August is roughly twice the requirement 
of a similar period during the winter. With the growth of the gaso- 
line demand from year to year the peak load has become more and 
more accentuated. A shortage in supply will make its first appear- 
ance as a stress at the peak season. L nder such conditions, the 
free operation of the law of supply and demand will dictate price 
advances for the purpose of allocating the inadequate supply. And 
gasoline touches the interests of so many individuals that sharp 
price increases accompanying a shortage are likely to bring on popular 
disapproval and governmental investigation, with the possibility of 
official restrictions and regulations. Hence counter-methods of 
cooperative allocation in the place of price allocation may come under 
consideration, in an attempt to avoid the results of governmental 
action. 

The Oil Industry Becoming a Transportation Industry. — The out- 
standing characteristic of the oil industry is its rapid and inevitable 
drift toward the status of a transportation industry, with all the 
public service obligations and restrictions that this term implies. 
The problem faced by the oil industry in this respect is a difficult one. 
The industry has inherently assumed responsibility for maintaining 
the supply of motor-fuel. This supply in all probability, however, 
cannot be maintained in requisite degree, so insatiable are the 
demands of automotive transportation. As a result, a motor-fuel 
shortage and a consequent price reaction become an ultimate event- 
uality, with all the possibilities that may grow out of that circum- 
stance. 



CHAPTER XX 
THE ECONOMIC SIGNIFICANCE OF CRACKING 

Nature of Cracking. — It has long been known that when sub- 
jected to high temperatures the heavier components of crude petro- 
leum break down or crack into lighter compounds. Thus, distilla- 
tion processes, early in the development of oil refining, were so 
adjusted that the hot vapors fell back into the still, whereupon some 
decomposition would ensue, leading to an enlarged output of kero- 
sene and gasoline. Such processes, however, increased the refinery 
losses and were so destructive of the lubricating components that 
they were found inexpedient in refineries intent upon producing 
lubricating oils in maximum output and of superior quality. 

The desire to offset the lessened yield of gasoline and kerosene 
incidental to lubricating output was one of the incentives that led 
to the development of independent cracking processes which could 
be applied after the initial separation of the components had taken 
place. This is the type of cracking that has outstanding significance 
under present conditions. Cracking during the initial distillation, 
though still widespread in refinery practice, is due to pass as refinery 
equipment is converted more and more to lubricating plants making a 
full extraction of values. At the same time cracking as an inde- 
pendent process, applied to one or more of the distillates obtained 
from the initial process of distillation, is on the increase stimulated 
by the growing demands for gasoline. 

Cracking Processes. — A large number of cracking processes have 
been devised, but few have attained commercial success; and only 
one, the Burton process, controlled by the Standard Oil Company of 
Indiana, has thus far made large contributions to the gasoline supply. 
The principles of the important processes are roughly the same — 
distillate fuel oil of a not too heavy character (gas oil) is subjected to 
special treatment under the influence of heat and pressure by means 
of which it is broken down or cracked into gasoline and a residual 
fuel oil, with the incidental formation of some carbon. 

While high efficiency is often claimed for cracking processes, the 
current commercial practice yields gasoline on an average of only 
about 30 to 40 per cent of the original material subjected to the 

272 



RAW MATERIAL FOR CRACKING 273 

process. Thus 100 gallons of gas oil ordinarily produce 30 to 40 
gallons of gasoline, the remainder being left in the form of residuum 
available as fuel, and coke which must be removed periodically from 
the apparatus at considerable expense. 

The cost of cracking is not publicly known, but the inference may 
be drawn from such information as is available that gas oil may be 
profitably cracked so long as its market price does not exceed roughly 
two-fifths to one-half the price of gasoline. Thus, with gasoline 
selling at 30 cents, it would be profitable to crack gas oil if the latter 
does not bring over 12 to 15 cents for other purposes. For the city- 
gas industry to secure a supply of gas oil, for example, it must com- 
pete with the cost relation just noted and be prepared to pay more 
than the value of the oil as a raw material for cracking. But effective 
competition in this direction would curtail the output of gasoline 
and result in a rising price for the latter which again would place 
the price of gas oil on a higher level. The mere fact that motor-fuel 
represents an economic requirement of higher rank than the demand 
for gas oil for purposes of enriching city-gas, indicates that cracking 
will not be effectively retarded by the claims of the gas industry upon 
this raw material. 

Raw Material for Cracking. — Cracking is successfully conducted 
in practice by utilizing only the lighter varieties of distillate fuel oil 
(gas oil) as raw material. The reason for this preference is that as 
fuel oil increases in density, or weight, the ratio of carbon to hydrogen 
in its components also becomes greater, and larger losses and rela- 
tively smaller yields are obtained in proportion as the raw material 
is richer in carbon. Thus as cracking is applied to successively 
denser types of fuel oil a critical point is reached at which cracking 
becomes commercially impracticable, irrespective of the efficiency of 
the process; and beyond which the manufacture of gasoline from 
such raw material can be accomplished only by a process of hydro- 
genation, or hydrogen-adding. The position of such a point is hard 
to determine accurately, especially as it may be shifted slightly by 
technical and economic changes in the cracking situation ; but it is a 
fair assumption that it divides the country's supply of fuel oil into 
two portions, of which the larger includes the heavy fuel oils unsuited 
for cracking. 

The heavier varieties of fuel oil (including residuum), which far 
outweigh in volume the lighter distillate fuel oils, have not therefore 
lent themselves to effective or profitable cracking. Some additions 
to the country's supply of light distillate fuel oil will come through 
changes in refinery practice, especially as skimming plants develop 
into complete-run refineries; but significant additions on this score 



271 THE ECONOMIC SIGNIFICANCE OF CRACKING 

cannot arrive rapidly. On the whole, the rigorous requirements 
of cracking processes in respect to raw material put a serious brake 
upon the rapidity with which the output of cracked gasoline can 
increase, and set an ultimate limit far short of the point at which 
the total fuel-oil supply of the country would be involved in the 
process. Under present practice, it will be scarcely possible, roughly 
speaking, for cracking to involve more than half of the fuel-oil supply 
and to yield cracked gasoline in excess of 25 per cent of the total 
quantity of fuel oil produced. 

It is apparent, then, that as the output of cracked gasoline 
increases, more and more of the lighter varieties of fuel oil will be 
diverted from their present uses until only the heavy fuel oils will be 
left to meet the normal commercial demands for this product. 

Residuum from Cracking. — A significant factor in the growth of 
cracking is found in the high proportion of the raw material which is 
not converted into gasoline and hence is thrown back into the fuel- 
oil supply as an uncrackable residuum. The volume of this residuum 
increases in direct proportion to the quantity of cracked gasoline 
produced, and hence as cracking eats into the fuel-oil supply on the 
one hand, a greater volume of residuum accumulates on the other; 
therefore the fuel-oil reserve of the country is encroached upon by 
cracking at more than double the rate ordinarily taken into account. 
Fig. 135 illustrates this point and indicates how quickly, irrespective 
of the quantity of fuel oil available, the potentiality of cracking may 
be realized. 

Relation of Cracking to the Gasoline Supply. — The demand for 
gasoline is growing faster than the supply of crude petroleum, and 
since 1917 the quantity of gasoline produced in this country has 
exceeded by a widening margin the quantity of natural gasoline con- 
tained in the crude petroleum consumed. (Sec Fig. 134.) Although 
casing-head gasoline and a change in the average quality of com- 
mercial gasoline to include some of the lighter kerosene cuts have 
augmented the supply of gasoline, the main increment to the normal 
quantity is now the contribution from cracking stills. A rough view 
of the growth of the various components entering into the gasoline 
supply is shown in Fig. 52, page 116. 

Natural Gasoline. — The potential supply of natural gasoline has 
been calculated from the character and output of the crude petro- 
leum produced in the various states and imported, and the results 
are plotted in Fig. 134 against the actual production of gasoline. The 
chart shows clearly that up to 1917 more natural gasoline was present 
in the crude petroleum consumed than was necessary to meet gasoline 
requirements, whereas after that year supplementary sources of 



NATURAL GASOLINE 



275 



gasoline were necessary to fill the demand. The chart also brings 
out the important part played by the high-gasoline crudes of the 
North Texas field in 1919-1920. Projecting forward the data shown, 
especially in the light of the growing importance of low-gasoline 




1900 



1905 



1910 



1915 



1920 



MILLIONS 

OF 
BARRELS 

10 



I 



o 

120 



I 



3G 



Frc. 134. — Chart showing the natural-gasoline content of the crude petroleum 
annually produced in the United States by fields and imported during the 
period, 1900-1920. 

crudes, it would appear that the available natural gasoline will show 
a slowing rate of increase in the face of an accelerating demand. 
This tendency will increase the burden falling upon cracking and 
create a gasoline shortage in the failure of cracking to expand with 
sufficient rapidity. Fig. 134 will repay careful consideration, as it 
dissects and measures the trend of the component parts of the largest 
contributor to the gasoline supply. 



276 THE ECONOMIC SIGNIFICANCE OF CRACKING 

Casing-head Gasoline. — A significant production of a highly 
volatile gasoline, called casing-head gasoline, is won from natural gas. 
This relatively new source of supply has made important contribu- 
tions, approximating in 1920 about one-tenth of the total output of 
gasoline, and having an added importance as a blending agent 
facilitating the employment of light kerosene as motor-fuel. As to 
the future, a careful appraisal of the casing-head gasoline industry 
indicates that while in absolute terms the output of this product will 
probably increase, its ratio to the total production of gasoline of all 
types cannot be expected to become greater. Hence, casing-head 
gasoline has already exerted its maximum effect upon the gasoline 
situation, and may be accredited with no added importance in 
appraising the broad developments ahead. 

End-point of Gasoline. — Since 1915, especially, the volatility of 
gasoline the country over, while showing minor fluctuations, has 
steadily decreased. Expressed in terms of the boiling point of the 
heaviest fraction — technically called the end-point — this statement is 
equivalent to saying that the end-point of gasoline since 1915 has 
notably risen. This again is equal to stating that a considerable 
quantity of light kerosene according to 1915 standards now goes into 
the supply of gasoline, constituting the high boiling-point fractions, 
or " heavy ends," of the latter and causing the present high end- 
point. The average end-point of the country's supply of gasoline, 
according to recent motor-gasoline surveys conducted by the Bureau 
of Mines, was 417° F. in April, 1919; 427° F. in January, 1920; 
456° F. in July, 1920; and 429° F. in January, 1921. 

The advance in end-point of gasoline is an indication that the 
demand for this product is exceeding the combined efforts of natural 
gasoline, casing-head gasoline, and cracked gasoline to meet require- 
ments. The only handicap to a continued advance in end-point is 
the inability of existing internal combustion engines to utilize effi- 
ciently the heavy portions of such products. A significant ten- 
dency toward engine adaptations in this direction, however, is coming 
into being; and the gasoline situation will be considerably influ- 
enced by the extent and rapidity with which automotive equipment 
becomes capable of handling heavier and less volatile motor- 
fuels. 

The course of automotive developments, in consequence, will 
have a bearing upon cracking; and should automotive equipment 
come to a point of independence in respect to the volatility of the 
fuel which it consumes, cracking will no longer be necessary and will 
decline. The possibility of this eventuality must be borne in mind in 
appraising the future of cracking. 



APPRAISAL OF THE FUTURE 



277 



Appraisal of the Future. — An attempt to reduce to a quantitative 
basis the line of reasoning given above is shown in Fig. 135, which 
traces the factors involved through the past ten years on the basis of 




actual statistics and projects the probable course of events to the 
end of 1925. 

Fig. 135 shows the consumption of crude petroleum in the United 
States during the period 1910-1925 (estimated of course for 1921- 
1925) divided broadly into the fuel and non-fuel components, kero- 



278 THE ECONOMIC SIGNIFICANCE OF CRACKING 

sene being left as intermediate or neutral ground which may swing 
either way. The projected course of crude consumption is of course 
hypothetical, although based on a careful analysis of the situation; 
but the point should be emphasized that the validity of the chart 
does not depend upon the accuracy of the projected portion of the 
crude consumption curve. Large variations in the latter may be 
seen to have a greatly minimized effect upon any component shown. 

The chart represents fuel oil as a motor-fuel reserve upon which 
cracking is rapidly encroaching. This invasion will probably remove 
gas oil from the open market before the end of 1923, while the supply 
of potential gas oil will probably run out (being entirely consumed 
for cracking) by the end of 1925. If this reasoning is essentially 
correct — and it will merely be modified, not invalidated, by unfore- 
seen developments in supply — cracking would reach its maximum 
rate of expansion in five years, slowing down after 1925 to a rate of 
growth parallel with the increase or decrease in the quantity of crude 
petroleum made available for consumption. Such is essentially the 
outside attainment that may be expected from cracking in the next 
five years; as a matter of fact, the growth of cracking is likely to be 
less than the maximum indicated on the chart, perhaps approxi- 
mating the dotted lines passing through the area marked " cracked 
gasoline." 

The question therefore arises as to whether cracking can sustain 
the supply of motor-fuel in sufficient volume to support the mounting 
requirements of automotive transportation. The conclusion that 
seems indicated by the analysis given is that the supply may be 
maintained over a few years, but shortly the limitations to cracking 
will come into effect, and cracking unaided by other expedients 
will begin to prove inadequate. In this event, the internal combus- 
tion engine will be gradually forced to fall back upon heavier, less 
volatile fuels than gasoline, which will set up a counter demand for 
the light fuel oils and other distillates for admixture directly with 
gasoline, and thus cut into the raw material for cracking at the same 
time that cracking is rendered progressively unnecessary. 



CHAPTER XXI 

COMPOSITE MOTOR-FUELS 

In recent years considerable attention in the automotive field 
has been directed to the relation existing between the internal com- 
bustion engine and its fuel. The rapid rise of automotive transpor- 
tation has led to a country-wide change in the volatility of gasoline, 
which has attracted no end of interest and raised the problem of 
better fitting the fuel to the engine, or vice versa, or else striking a 
compromise adjustment between the two. 1 

As the matter is shaping up now, there are three avenues through 
which this adjustment is tending to come about: 

(1) The production of a growing quantity of synthetic gasoline 

from the heavier oils, through the so-called cracking 
processes of distillation. 

(2) Adaptations on the part of the engine to accommodate the 

efficient utilization of less volatile gasolines and heavier 
oils. 

(3) The development of composite fuels or blends, which 

permit the enlargement and possibly the improvement 
of the fuel supply, through additions of material not 
suitable or sufficiently bountiful alone to be of conse- 
quence. 

The future of any one of these three expedients for furthering 
the advance of automotive transportation depends upon the course 
of development in respect to the other two, and the final outcome 
will be the resultant of factors which cannot be wholly appraised in 
advance. Not the least of these is the extent to which the whole 
matter is brought under scientific control by far-sighted and con- 
structive efforts on the part of the fuel and automotive industries 
acting in common. 

Composite fuels are by no means a new element in the fuel situa- 
tion, even in the United States. Indeed, much of the gasoline mar- 
keted in this country to-day is composed of straight-refinery gasoline 
blended with gasoline made in pressure stills, or with casing-head gaso- 

1 Pogue, Composite Fuels, Society of Automotive Engineers, January 7, 1920. 

279 



280 COMPOSITE MOTOR-FUELS 

line recovered from natural gas, together with petroleum distillates 
that were formerly sold as naphtha or kerosene; and even gasolines 
are being modified through the addition of benzol. Casing-head 
blends alone have succeeded in adding about 10 per cent to our total 
supply of engine fuel. Composite fuels, in which not only distillates 
of petroleum origin but benzol, coal-tar oils, alcohol and even other 
chemical products play a part, have of course been long in use in 
Europe, and some of these met with considerable expansion during 
the war, especially in Germany. In the past few years, fuel blends 
containing benzol or alcohol have also come into qualitative, if not 
quantitative, prominence in the United States, thus drawing atten- 
tion to the possibilities of their future importance in this country. 

Source of Composite Fuels. — The resources in sight from which 
the components of composite fuels may be drawn are mainly three in 
number : 

(1) Crude petroleum (ultimately including shale oil). 

(2) Bituminous coals, which are capable of yielding tar oils, 

benzol products and other hydrocarbons when subjected 
to by-product distillation. 

(3) Organic products rich in sugars, starches or cellulose, 

especially waste products of organic origin, from which 
oxygenated hydrocarbons such as alcohols and ethers 
can be manufactured, chiefly through the aid of bac- 
terial fermentation. 

As regards the quantity of raw material available, the United 
States is bountifully endowed in all three respects. Since, however, 
an extensive and highly organized industrial agency of fabrication 
and distribution must stand between these resources and the utiliza- 
tion of their fuel potentialities for automotive power, the develop- 
ment of composite fuels becomes dependent not only upon the con- 
ditions controlling the growth of the oil-refining industry, the coal- 
refining industry, and a group of activities which may be termed the 
fermentation industry, but also upon the interplay between these 
interrelated activities. 

The oil-refining industry is the largest, most firmly established 
and highly developed of the three, and its capacity and industrial 
ability may briefly be dismissed as being sufficiently in mind. This 
industry turns out four products of major importance, gasoline, kero- 
sene, fuel oil and lubricating oil, not to mention by-products; and its 
output of gasoline, in consequence, is intimately tied in with the 
manufacture of joint-products demanded by needs scarcely less 
pressing than automotive transportation. Thus, gasoline has 



COAL PRODUCTS 281 

become a commodity which must be produced, if the market for 
other oil products is to be supplied ; while the oil industry in addition 
has established country-wide machinery for distribution. These 
economic facts have a direct bearing upon the manner in which com- 
posite fuels can be expected to develop; they make it probable that 
composite fuels, if found desirable, will ultimately be purveyed 
dominantly by the oil industry rather than by outside activities, 
under whatever auspices the initial developments take place and 
without any reference to matters of financial control. 

Coal Products. — The coal-refining industry has thus far been slow 
of development in the United States. To date it has succeeded in 
involving only about one-twelfth of the bituminous coal brought 
into use, approximately eleven-twelfths being still consumed in the 
raw state; the coke industry and the artificial-gas industry are 
responsible for the advance noted. The production of benzol and 
related hydrocarbons is mainly dependent upon the progress attained 
in coal refining. 

Up to the present, most of this progress has taken place in the 
coke industry, where by-product practice is gradually superseding 
the so-called beehive process, in which benzol and other by-products 
are not recovered; benzol is now being produced in connection with 
about half of the coke manufactured in this country. In 1920 the 
output of benzol from this source was 80 million gallons. With 
by-product practice throughout the coke industry, the output 
would have been but doubled, around 3 per cent of the quantity of 
gasoline produced. The coke industry, therefore, can at best be 
expected to furnish a quantity of liquid fuel wholly inadequate to 
have broad significance, except in so far as it may be used as a blend- 
ing agent to give desirable qualities to other liquid fuels obtainable in 
larger quantities. 

The artificial-gas industry was responsible in 1918 for the pro- 
duction of about 4 million gallons of benzol, recovered from gas 
plants operating with by-product recovery. The entire artificial- 
gas industry, however, consumes less than 2 per cent of the country's 
output of bituminous coal, and as long as this activity retains its 
present stationary position the quantity of engine fuel to be expected 
from this source is practically negligible. There is a possibility, 
however, that the future will see the upgrowth of municipal fuel 
plants and centralized power stations, operating with by-product 
recovery, which will give a new source of benzol of greater signifi- 
cance than the coke industry in its entirety. But such develop- 
ments must of necessity be slow; and should benzol eventually be 
extracted from the bulk of our bituminous coal, it is evident that, on a 



282 COMPOSITE MOTOR-FUELS 

basis of 2 to 3 gallons per ton, the supply will oven then fall far short 
of a dominant position as a source of automotive power. 

During t ho past few years, investigations by Kettering and 
Midgely in the laboratories of the General Motors Research Cor- 
poration on the chemical changes taking place during combustion, 
have opened up new and interesting possibilities in the direction of 
increasing the efficiency of the petroleum motor-fuels by the addition 
of small quantities of appropriate chemical substances. These 
investigations have indicated that the tendency of the engine to 
" knock " when run on fuels of low volatility arises from the forma- 
tion of secondary, detonatable compounds which decompose with 
explosive violence and cause an abnormal rise in pressure. 1 This 
tendency stands in the way of further raising the end-point of gasoline 
without at the same time lowering the compression of the engine, 
which blocks the enlargement of our fuel supply not only by rendering 
deeper cuts into the crude ineffective, but also by preventing the 
added fuel economy that could be attained with engines of higher 
compression. It has been shown, however, that the addition to the 
fuel of small percentages of aniline — a nitrated benzol — leads to even 
combustion without detonation, and therefore not only improves the 
performance of present-day high-end-point fuels, but opens the pos- 
sibilities of still further raising the end-point and at the same time 
gaining additional efficiency by increasing the engine compression. 

This work is of the first importance, both by virtue of what it is 
actually accomplishing, and in respect to what it suggests as to the 
possibilities of fabricating directly into the fuel, during the process 
of refining, the properties which would lead to a more efficient utiliza- 
tion in present engines and eventually to the development of more 
efficient engine types. 

Alcohol. — The fermentation industry, notably the branch having 
to do with the manufacture of industrial alcohol, was strongly stim- 
ulated by the war, and industrial machinery w r as developed for the 
production of considerable alcohol for fuel purposes. The arrival of 
prohibition also freed a large equipment from other duties, which 
might be turned in part to a similar purpose. There are serious 
handicaps of a sentimental nature, however, which tend to bind the 
manufacture of industrial alcohol with restrictions harmful to 
progress. Besides which, the industrial depression of 1920-1921 has 
retarded advance in this field. 

1 C. F. Kettering, More Efficient Utilization of Fuel, Jour. Soc. Aut. Eng., 
April, 1919; Consumption, The Automotive Industry, American Petroleum 
Institute, Hull. 132, December 10, 1920. The Midgley Gas Engine Indicator, 
Dayton, 1920. 



ALCOHOL 283 

■ 

Alcohol alone can be used to advantage only in engines especially 
adapted to this fuel, but various mixtures of alcohol, benzol, gasoline 
or other petroleum distillates, and other materials have given prom- 
ising results. It is of great significance from an economic standpoint 
that alcohol, benzol and the lighter petroleum distillates such as gaso- 
line and kerosene can readily be rendered miscible. It is probable 
that alcohol, like benzol, will not come into widespread use as a single 
fuel, but has a broad significance, for the present at least, only as a 
blending agent in connection with liquid fuels obtainable in larger 
quantities. 

The quantity of alcohol which will be produced in this country 
in the immediate future is much more difficult to foresee than in the 
case of benzol. The United States in 1916, 1917, and 1918, turned 
out about 50 million gallons of denatured alcohol each year, having 
increased from an output of 14 millions in 1915 under the stimulus 
of munitions requirements. Much of the industrial alcohol under 
manufacture to-day is made from sugar molasses and waste sulphite 
liquor; while garbage, fruit wastes, ethylene from coal-distillation 
plants, and other materials may be counted as supplementary 
resources. Considerable interest has been aroused in some quarters 
by the possibility of installing individual manufactories on farms 
and in various centers, making use of plant wastes; but it is ques- 
tionable whether an extensive attainment of this kind is practicable 
and moreover the widespread production of alcohol would set up 
competition for products needed directly or indirectly for food. 
While the ultimate alcohol capacity of the country cannot be closely 
measured, the conclusion seems warranted that for some time to 
come the available supply will bear a close quantitative analogy to 
benzol, the two combined bulking small when compared with engine- 
fuel requirements which already approach 5 billion gallons per year. 

On the whole, therefore, it would appear that benzol and alcohol 
hold somewhat analogous positions in respect to the supply of motor- 
fuel. Neither can be produced in sufficient quantities in the near 
future to replace gasoline; both have interesting possibilities in the 
direction of improving the character of the fuel supply. This whole 
field is undeveloped and stands in need of more research attention 
than has been accorded it. 

Conclusion. — If found to fulfil their initial promise of advantage, 
composite fuels can be developed by the oil industry, or in a more 
limited manner by outside agencies; but they can more readily be 
produced on a large scale by the oil industry because of its control 
of working channels of distribution. The possibilities of improving 
the supply of gasoline by chemical means are of distinct promise, and 



284 COMPOSITE MOTOR-FUELS 

consequently there may come into evidence a steady trend toward a 
fuel supply of petroleum origin carrying small quantities of other 
materials which will facilitate utilization in present types of engines 
and at the same time free the development of future engines from the 
present limitations of low compression. 



CHAPTER XXII 
THE MOTOR FUEL PROBLEM 

One of the most remarkable and significant developments of 
modern times is the sudden and spectacular rise of automotive trans- 
portation. In scarcely more than two decades, the whole color of 
existence has been changed by the automobile, the motor-truck, the 
tractor and the aircraft, which have come to be so numerous and 
commonplace as to be seen on every hand. Almost overnight, 
transportation has been freed from limitations of relative inflexibility, 
and a mobile and speedy agency of carriage has appeared on the 
scene to open to transportation the second and third dimensions. 

So rapid has been the growth of the automotive industry and of 
the consequent demand for motor-fuel, that the ability of the fuel 
supply to keep pace has come in question. The supply of motor- 
fuel, indeed, is already showing the effects of the tremendous demand 
bearing down upon it; and there arises, in consequence, a motor- 
fuel problem which is commanding the serious attention of all the 
interests at stake. Since a fuel stringency, or undue advance in 
price, would prove a retarding factor in the progress of automotive 
transportation, the prospect is one of vital concern not only to the 
industrial activities involved, but to the general public as well. 

The factors involved in this problem are the demand for motor- 
fuel and the adaptability of the internal combustion engine, on the 
one hand; and the supply of crude petroleum, the motor-fuel pro- 
ducing capacity of this material, the supplementary fuel materials in 
sight, and the possibilities of advantageous chemical change in the 
fuel supply, on the other. Out of the interplay of these factors will 
come developments, focused in the price of motor-fuel, that will 
determine the future of automotive transportation. 1 

The Demand for Motor-fuel. — The demand for gasoline has 
been increasing of recent years at an imposing rate. The nature of 
this expansion has been described in Chapter XIX. (See also Fig. 
57, p. 124.) The projection of this demand into the future leads 
to interesting conclusions. 

1 See J. E. Pogue, An Interpretation of the Engine-fuel Problem, Society of 
Automotive Engineers, February, 1919. 

285 



286 



THE MOTOK-FUEL PROBLEM 



The probable number of motor-vehicles which will be required 
by automotive transportation in the years immediately ahead, if the 
demand is not curtailed by an inadequate supply of fuel or an undue 
advance in its price, has been calculated on the basis of the trend of 
population increase and the assumption that the maximum ratio of 
vehicles to population as found to-day in the most prosperous sections 
will become characteristic of the entire country. Calculations for 
passenger cars and trucks, made on this basis, by the Commercial 
Research Department of the Franklin Automobile Company are 
shown in graphic form in Fig. 136. This projection for cars and 
trucks, together with the prospective number of tractors on an 
assumed increase of 200,000 a year (the number produced in 1920), 
is converted into gasoline and crude petroleum in Table 116, on the 
basis of the present fuel consumption per unit and a conversion 
factor of 25 per cent representative of the proportion of gasoline 
obtained from crude petroleum under present conditions. 

Table 11 ( >. — Future Demand for Gasoline in the United States in 1925, 
1930, 1935 and 1940, Based on Present Conditions of Fuel Supply 
and Future Number of Motor-vehicles as Projected by Franklin 
Automobile Co. 

(In millions of bands) 





Gasoline Required by — 


Gasoline, 

Total 

Requirements 


Equivalent in Crude 

Petroleum on Basis of 

25 Per Cent 

Conversion 

Factor 


Year 


Passenger 
Cars 


Trucks 


Tractors 


1925 
1930 
1935 
1940 


80 

96 

112 

120 


120 
216 
312 
360 


16 

28 
40 
52 


• 216 
340 
464 
532 


864 
1360 
1856 
2128 



While the figures shown are admittedly excessive and to be 
considerably discounted, especially in regard to trucks, they never- 
theless point to a future motor-fuel demand of stupendous propor- 
tions. With an unmined reserve of crude petroleum appraised at 
6 billion barrels, having an estimated gasoline content of only 1 
billion barrels, the gasoline demand as shown would exhaust the 
entire domestic reserve by 1926, and projected further would call 
for an annual share in the world's output of crude petroleum running 
upward of 1300 million barrels by 1930 and exceeding 2 billion 
barrels by 1940. It is evident that if such a demand, even halved, 
is to be met by gasoline on the basis of present engine types and 
performance, the oil industry must expand to proportions vastly 



THE DEMAND FOR MOTOR-FUEL 



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288 THE MOTOR-FUEL PROBLEM 

greater than its present dimensions and find new oil sources of suffi- 
cient magnitude and accessibility to support this expansion. The 
alternative, aside from a curtailment of the demand, is a change in 
fuel and engine in the direction of extracting a much greater motor- 
fuel service from a much smaller volume of raw material. 

Adaptability of the Internal Combustion Engine. — The automo- 
tive engine has developed and become standardized in its main 
features on the basis of cheap and volatile gasoline. Its improve- 
ment has for the most part followed the direction of convenience 
and performance, with secondary consideration to fuel economy. 
This trend has been sustained to the present time by the existence 
of a highly stimulated oil production, providing, until lately, gasoline 
capacity in excess of gasoline demand. So long as this condition 
obtained, there was no need apparent for the automotive industry 
to concern itself with considerations of fuel supply, but now, with the 
gasoline capacity of the country beginning to give indications of 
strain, while the motor-fuel demand is just fairly getting launched, 
the question arises whether the exigencies of the future will allow the 
engine type continued freedom of development in luxury directions, 
or will force adaptations to meet the exactions of the fuel situation. 

Automotive apparatus is mechanically responsive to changing 
requirements, but its adaptation to new conditions is retarded by the 
time required to perfect mechanical developments and the counter 
advantages to be gained from quantity production and standardiza- 
tion, with their resistance to change. So far-reaching and insistent, 
indeed, are the claims in favor of holding fast to established standards, 
that departures can be made only at great cost and in response to 
powerful reasons. Anticipatory action becomes peculiarly difficult 
in the face of these circumstances. Recognizing the strength of the 
factor opposing changes in engine type and seeking to force the fuel 
supply into channels fitting the established standards, we may 
examine the fuel supply with a view to determining if present engine 
practice can be advantageously maintained, and, if not, along what 
lines changes are likely to be made. 

The Supply of Motor-fuel. — The motor-fuel in dominant use in 
the United States is gasoline, a mixture of volatile hydrocarbons won 
from crude petroleum by processes of distillation. Kerosene, fuel 
oil, lubricating oils, and various by-products are produced at the 
same time, and bear an intimate relation to gasoline, in respect both 
to price and the relative quantities produced. The output of these 
products in 1920 is shown in Table 117. 

The country's supply of gasoline depends upon the output of 
domestic petroleum and the gasoline-producing capacity of this 



THE SUPPLY OF MOTOR-FUEL 



289 



material, the quantity of foreign petroleum made available through 
importation, and the extent to which supplemental means for expand- 
ing the supply are developed. 



Table 117. — Production of Petroleum Products in the United States in 

1920 

(Data from U. S. Bureau of Mines) 



Product 


Millions of Barrels 


Per Cent 


Gasoline 


116.2 

55.2 

211.3 

24.9 

47.7 
18.7 


24.5 
11.7 
44.6 

5.3 

10.0 

3.9 


Kerosene 


Gas and fuel oil 


Lubricating oils 


All others 


Losses 


Total 


474.0 


100.0 





The Supply of Domestic Petroleum. — The supply of crude petro- 
leum available in this country depends upon the unmined reserve 
and the rate at which it may be won. The petroleum resource in 
the United States has been inventoried by the U. S. Geological 
Survey in 1908, 1916, and 1918 j 1 each time in greater detail. The 
results obtained are highly significant, especially as regards the 
meagerness of the reserve, which approximates 6 billion barrels when 
adjusted for Jan. 1, 1921 (see Fig. 137), and in respect to the fact that 
between 1908 and 1918, in spite of an exceedingly aggressive cam- 
paign of exploration, the oil taken from the ground exceeded the 
additions made to the reserve through new discoveries. Those who 
count upon new discoveries to make up for the progressive depletion 
of the reserve overlook the fact that for over ten years new discoveries 
have been failing to do so. 

At the same time the production of crude petroleum has been 
steadily mounting to its present enormous figure, 443 million barrels 
for the year 1920 as contrasted with 210 million barrels in 1910. The 
growth in output has been sustained, not primarily by the discovery 
of new oil-fields, but largely by the cumulative tapping of an increas- 
ing number of rich spots in inventoried territory. There is obviously 
a limit to an output supported by such a train of circumstances; 
there are strong engineering and economic reasons for believing that 
the production of crude petroleum in the United States has virtually 

x See pages 18-21. 



290 



THE MOTOR-FUEL PROBLEM 



reached its maximum annua A rate m 192i, and that the country 
will thereafter pass into a period of a declining and more costly 
production. (See Fig. 4, page 20.) 

The Gasoline Factor. — The output of gasoline approximates 1 
the production of crude petroleum multiplied by its commercial- 
gasoline factor, which in 1920 was 21.8 per cent. 2 This factor, like 
the supply of crude petroleum, is itself a variable figure depending 
upon the proportion of the crude supply subjected to refining, the 
natural gasoline content of this quantity, and the extent to which 

ORIGINAL SIZE OF PETROLEUM RESERVE 11.3 BILLION BARRELS 






1 i i i 






>USED (5.4 BILLION BBLS.) 



>UN 



USED (5.9 BILLION BBLS.) 



865 1870 1875 1880 1885 1890 1895 1900 1905 1910 1915 1920 

Fig. 137. — The waning reserve of petroleum in the United States. 

means are used for forcing the gasoline yield above the natural 
gasoline content. Obviously, as long as the natural gasoline is not 
fully extracted from the available crude, there is scant economic 
room for the development of roundabout, i.e., more intricate, more 
costly means for producing gasoline. This was the situation that 

1 Because of the subordinate item of the gasoline produced from natural 
gas, the relation is not an exact equality. 

2 The commercial-gasoline factor is here used to designate the percentage of 
gasoline obtained from the crude consumed; the commercial-gasoline factor 
should be distinguished from the natural-gasoline factor, which represents the 
percentage of natural gasoline present in the crude. The former percentage has 
increased until it has exceeded the latter. The natural-gasoline content of the 
domestic production of crude petroleum in 1920 was approximately 21. G per 
cent; of the imported crude, approximately 8 per cent. 



THE GASOLINE FACTOR 291 

prevailed in the United States until recently; this is why naturalrgas 
gasoline, cracked gasoline, and low-volatile gasoline are all recent 
commercial developments. 

The proportion of the crude supply subjected to refining has been 
steadily increasing until, in 1920, of a total consumption of 531 
million barrels of crude petroleum in the United States, 434 barrels 
or 82 per cent was run to stills. While the statistics may not indicate 
the precise situation in this respect, the quantity not refined repre- 
sented in the main heavy, non-gasoline crudes used directly for 
fuel purposes. Thus practically the whole supply of crude has now 
come to be requisitioned for gasoline production. This is to say 
that the readiest means for increasing the supply of gasoline, i.e., 
refining a progressively larger percentage of the crude produced, 
has been virtually forced to its limit; the " gasoline slack " within 
the crude production has been taken up. Thus the most potent 
circumstance that has thus far enabled the demand for gasoline to 
increase without a concomitant increase in price is no longer in 
existence. Further expansion in gasoline output will lie through 
more difficult avenues than that of merely increasing refinery capacity. 

While dependent primarily upon the quantity of crude refined, 
the output of gasoline is at the same time a function of the average 
composition of the various crudes that go to make up the total 
supply. Since crude petroleum varies in its natural-gasoline content 
from about \\ per cent in the case of heavy, asphaltic oils to 30 
per cent or more for light, paraffin oils, it is evident that the gasoline 
supply will be strongly influenced by the dominant type of oil. As 
the high-gasoline crudes were the first to be exploited in this country, 
the unmined supply of petroleum has been selectively reduced in 
gasoline capacity, so that the crude production of the future will 
show a lower natural-gasoline factor than the crude supply of the 
past. While this matter cannot be expressed quantitatively, in 
very rough terms it may be noted that the high-gasoline crudes are 
about half exhausted, while the low-gasoline crudes, originally of 
about equal magnitude, are only about a third used up. In other 
words, the country's gasoline capacity is being drawn upon more 
rapidly, and hence exhausted more quickly, than is indicated by the 
condition of the crude supply viewed alone. This tendency was of 
no immediate consequence so long as it could be compensated by 
merely refining a greater proportion of the output of crude; but now, 
since practically all of the domestic crude is used for gasoline extrac- 
tion, a decline in gasoline content can be offset only by shoving crude 
production to a higher figure than would otherwise be necessary, or else 
through a still greater use of means for wresting an unnatural per- 
centage of gasoline from the crude obtainable. 



292 



THE MOTOR-FUEL PROBLEM 



The estimated supply of natural-gasoline present in the unmined 
reserve of crude petroleum is shown in Table 118. 

Table 118. — The Estimated Natukal-gasoline Content of the Unmined 
Supply of Crude Petroleum in the United States on January 1, 1921 

(In millions of barrels) 



Fields 



Unmined Supply of 
Crude Petroleum 



Estimated Natural- 
Gasoline Content 



Appalachian 

Lima-Indiana .... 

Illinois 

Kansas-Oklahoma 
North Texas 

North Louisiana . . 

Gulf Coast 

Wyoming 

California 

Others 

Total 



491 

33 

152 

1465 

262 

53 

703 

370 

2043 

350 



147 

7 

30 

366 

87 

15 
11 

110 
204 



5922 



1065 



In respect to imported crudes, the natural gasoline content has 
varied from virtually zero up to a maximum of 12 per cent; and the 
bulk of the oil in sight in Mexico, Central America, and South Amer- 
ica corresponds more closely to the types already imported than to 
the high-gasoline crudes of the Appalachian and Mid-Continent 
fields which have been the bulwark of gasoline production in this 
country. 

Enlarging the Gasoline Factor. — The means for producing more 
gasoline than may be obtained by subjecting the total supply of crude 
to straight refining are: (1) increasing refinery efficiency, (2) blending 
high-volatile natural-gas gasoline with low-volatile refinery gasoline, 
naphtha, and kerosene, (3) extending the use of cracking in refinery 
practice, and (4) lowering the volatility of gasoline. All four means 
are increasing in use. For the sake of brevity the first two may be 
passed over with the comment that, while important, they have 
quantitative limitations which prevent them from broadly affecting 
the situation. This is not true of the second two, the limitations 
of which are of a different order. 

Cracking is a process attachable to straight refining, by means of 
which low-priced distillates such as gas-oil are rerun under more 
rigorous conditions and partly converted into gasoline. So far 
cracking has operated commercially only upon distillate fuel oil 



ENLARGING THE GASOLINE FACTOR 293 

and has yielded gasoline to the extent of 30-40 per cent of the oil 
treated. These conditions would appear to limit the volume of 
gasoline ultimately attainable by cracking to around 25 per cent of 
the total supply of fuel oil. There is also the element of time to be 
reckoned with before cracking could expand to its limit, while counter 
demands affecting distillate fuel oil are arising which may restrict 
the quantity available for cracking. The process, moreover, can 
be profitably operated only so long as a favorable differential exists 
between the market price of distillate fuel oil and the selling price of 
gasoline, hence the growth of cracking to a point restricting counter 
demands may be expected to institute an economic cycle where 
further cracking may be realized only upon the basis of higher levels 
of pr;ce for gasoline. On the whole, therefore, it would appear that 
cracking, while of the utmost importance for the present, will prove 
incapable of augmenting the gasoline supply in adequate volume 
with sufficient economy and celerity to sustain the future demands 
of automotive transportation. 

The fourth means for enlarging the output of gasoline independ- 
ently of the production of crude is through lowering the volatility 
of the product. The less specialized the engine fuel in respect to 
volatility, the more can be produced from a given quantity of crude 
by the processes of refining in general use. By a change in character, 
the supply of " gasoline " can be enlarged, slowly or rapidly at will, 
without material refinery changes, until it is two to three times the 
present figure, even with no increase in the supply of crude. Since 
the materials requisitioned in such a change are the basis of kerosene 
and fuel oil, which can be replaced almost entirely by coal and its 
products, the transition may be made without a basic disturbance of 
the country's economic fabric and without setting up counter forces 
tending to turn back the tide. The practical limit to this enlargement, 
however, is set by what the standardized automotive engine will 
accept in the way of fuel. The progress of gasoline in this direction 
has already gone as far as practicable under existing standards. A 
critical point has been reached in the end-point of gasoline, where a 
further upward change will increase consumption more than it would 
increase production and thus deplete rather than augment the total 
available fuel supply. 1 If further gain is to be made here, therefore, 
either the character of the fuel or the engine, or both, must change. 
If the fuel current finds an unbreakable dam at this point, the whole 
pressure of advance will be thrown back into the channels already 
reviewed. But since the past few years have seen the end-point of 

1 H. C. Dickinson and S. W. Sparrow, Possible Fuel Saving in Automotive 
Engines, American Petroleum Institute, November 17, 1920 



294 THE MOTOR-FUEL PROBLEM 

gasoline steadily rising, in spite of all opposition, while the engine 
equipment lias already been forced to make superficial concessions 
to this tendency, it is apparent thai 1 he channels of crude production, 
cracking, etc., have already demonstrated their incapacity unaided 
to accommodate the rising flood of gasoline demand. If these main- 
stays of automotive transportation are failing to meet the issue now, 
it is hazardous to count upon complete relief in that quarter when the 
pressure focusing there is rapidly increasing. 

Bearing of Foreign Deposits upon the Situation. — The limita- 
tion to the gasoline supply arising from the domestic production of 
crude petroleum has been generally recognized, but deposits in 
Mexico and other foreign regions are counted upon in many quarters 
to fill in the gap. It has been shown elsewhere (see Chapter XXV), 
however, that the proven oil-pools of Mexico, the principal standby, 
are well-nigh exhausted, and an interval of years must elapse before 
the output of that country can be strongly reinforced by newly 
developed territory. Also the exploitation of other foreign deposits 
involves an element of considerable time, not to mention restrictions 
of a political and financial character. (See Chapter XXIV.) More- 
over, much of the prospective territory most convenient of access to 
the United States gives promise of yielding in the main low-gasoline 
crudes such as those that characterize the Gulf Coastal Plain of the 
United States and Mexico. 

On the whole, foreign deposits do not appear to be capable of 
compensating for the decline due in domestic output and of sup- 
porting the increments to demand as well, on the basis of the present 
disposition of products. Indeed, the richest known deposits of 
Mexico were exploited and exhausted before the output could be 
brought significantly into motor-fuel production; and the same 
outcome will probably characterize to some degree the development 
of rich deposits further afield. In short, the demands concentrating 
upon crude petroleum the world over are such that the volume avail- 
able for consumption in the United States can scarcely be ex- 
pected to continue to increase at the rate characterizing the past 
decade. 

Significance of Supplementary Motor-fuels. — The petroleum 
industry is so firmly established and produces such a range of products 
other than gasoline, that no motor-fuel of non-petroleum origin need 
be counted on as capable of displacing gasoline. Substitute fuels 
are to be regarded as supplementary resouices, capable of affecting 
the situation broadly only as petroleum relinquishes the field through 
exhaustion. 

There are three supplementary motor-fuels in sight — benzol, 



FUEL AND ENGINE ALREADY CHANGING 295 

alcohol, and shale-oil distillate. 1 Benzol and alcohol, in the form of 
appropriate blends, are already coming on the market in small quan- 
tities; shale-oil distillate may be expected to contribute only on a 
higher level of price than at present obtains. As to resource capac- 
ity, benzol is a by-product of coal, and the quantity produced is 
dependent upon the coal subjected to by-product distillation; benzol 
will be manufactured in constantly increasing volume, but the total 
supply, under present technology, can never fill more than a small 
part of the motor-fuel requirements. Alcohol may likewise slowly 
increase in volume but after the utilization of a few readily obtainable 
waste products, its manufacture will come into competition with 
food demands and hence meet a critical limitation in its further 
expansion. Shale-oil distillate is derivable from a resource prac- 
tically unlimited in size, but a large output must wait upon the 
upgrowth of a new industry in which but the merest start has been 
made. 

On the whole, supplementary motor-fuels, while of the utmost 
eventual importance and deserving of the most vigorous development, 
can scarcely be counted on to make notable independent contribu- 
tions to the motor-fuel supply in the immediate future. Their chief 
significance for the present would appear to lie, not in their volumetric 
importance, but in their apparent ability to raise some of the inter- 
mediate petroleum distillates to motor-fuel rank and improve the 
operating efficiency of heavy gasolines when appropriately blended 
with these substances. 

Fuel and Engine Already Changing. — It is apparent from the 
foregoing review that the demand for motor-fuel has already begun 
to outdistance the supply of gasoline, with the result that the char- 
acter of the fuel is changing and the appliance is beginning to adapt 
itself to this change. It is furthermore apparent that the demand 
in the years ahead will assume such tremendous proportions in the 
face of a resource whose ultimate size is limited and whose rate of 
production is restricted, that motor-fuel service can be sustained by 
sheer volumetric increases in supply in still less degree and additional 
changes may be expected in both the fuel and the appliance making 
for higher net efficiency. It is a fair assumption that the insistence 
of the demand will exhaust all possibilities in both engine and fuel 
before a curtailment in automotive transportation would be accepted. 

Changes in the Appliance. — The automotive appliance, while a 
triumph of engineering as regards simplicity and reliability, leaves 
much to be desired in the way of fuel economy. Changes in the 
appliance hold the possibility not only of increasing the mileage 

1 See Chapter XXI for a fuller discussion of supplementary motor fuels. 



296 THE MOTOR-FUEL PROBLEM 

obtained but also of permitting the physical supply of fuel to be 
enlarged through the inclusion of non-volatile distillates not useful 
as motor-fuel in present engines. The possibilities of appliance 
change fall chiefly into four categories, some of which involve coordi- 
nate changes in the fuel itself: (1) the distribution of the fuel to the 
cylinders may be improved; (2) the combustion of the fuel in the 
cylinders may be made to yield higher efficiency; (3) the design of 
the appliance may be changed in the direction of smaller, lower- 
powered units, better adjustment of the load factor through an addi- 
tional gear-shift, and the like; and (4) the engine type may be 
changed in favor of the injection engine, the steam engine, or even 
some other type yet to be perfected, such as the gas turbine. 

(1) The less volatile the fuel, the greater the difficulty in gaining 
proper vaporization, even distribution to the cylinders, and no con- 
densation in the cylinders with consequent dilution of the crank-case 
oil. With the rise in end-point already experienced with gasoline, 
the old methods of distributing the fuel as a cold mixture have proved 
inadequate, and various means have been commercially developed 
to apply heat to the charge in order to improve its distribution. 
There is considerable difference of opinion as to what constitutes the 
best means of preparing the fuel for the engine. The hot-spot man- 
ifold concentrating the heat where the liquid strikes the walls, the 
manifold completely jacketed by the exhaust so that the entire mix- 
ture is heated, the hot-air stove which heats only the air going to 
the carburetor, methods for preparing " superheated " gas, and many 
other variants are all coming into prominence. All resources have 
not yet been exhausted in this respect, and further improvements in 
the induction system and the extension of these improvements to all 
units may be looked for. 

Effective distribution, however, while leading to a more efficient 
utilization of the fuel, is only one, and perhaps a minor, part of the 
problem of improvement facing the automotive appliance. 

(2) A second possibility of improvement in the appliance is the 
matter of gaining greater efficiency in combustion. The thermal 
efficiency of the carburetion engine is primarily dependent upon the 
compression ratio. As the gravity of the fuel is lowered (or the 
end-point raised), the compression of the engine must be lowered 
to prevent the phenomenon of detonation called knocking. And 
as the motor builder lowers the compression of his engines, they 
operate less efficiently and require a greater quantity of fuel per mile. 
The problem of raising the efficiency of combustion, therefore, is not 
entirely a mechanical one; this matter involves the chemical character 
of the fuel quite as much as it does the mechanical nature of the 



CHANGES IN THE APPLIANCE 297 

appliance. It can be solved only by coordinate attention to fuel and 
engine. The work of Kettering and Midgley has pointed the way to 
changes that may become effective in the direction of adding certain 
components to the fuel that will permit its efficient employment in 
engines of higher compression than prevalent to-day. The same 
means will also allow a larger proportion of the crude to be effectively 
employed in engines of present-day compressions pending the more 
fundamental change. 

(3) Aside from the improvements in the distribution and com- 
bustion of the fuel, mechanical changes are possible in other respects 
that would greatly increase the mileage per gallon of fuel. In the 
first place, the employment of exceedingly high-powered cars could 
be curtailed; but this is a minor matter compared with the fact that 
all cars are adjusted to carry a peak load of performance far in 
excess of normal running requirements. And this extra ability, 
called into use only now and then, is paid for by an increased con- 
sumption of gasoline whenever the car is running. In other words, 
the average car runs at its maximum efficiency only at full load 
with open throttle; under these conditions the car may attain a 
thermal efficiency of 20-25 per cent. But under ordinary road con- 
ditions the car is running most of the time at part load, and the 
efficiency drops very rapidly as the load is reduced. The operating 
efficiency of the typical car, therefore, is only around 5-10 per cent, 
from a quarter to a third of its maximum. By making smaller, 
lower-powered motors, some of the luxury qualities of the present 
automobile would be sacrificed, but a considerable gain in fuel 
economy would be attained. 

Even with cars as they are to-day, a fuel loss running upwards of 
25 per cent results from improper carburetor adjustment leading 
to the employment of an over-rich mixture. Experiments on exhaust 
gases conducted by the U. S. Bureau of Mines, 1 in connection with the 
ventilation of the Hudson River Vehicular Tunnel, have demon- 
strated that the combustible gas in the average automobile exhaust 
contains nearly 30 per cent of the total heat in the original gasoline. 
Careful carburetor adjustment should result in saving half of this 
quantity. The great majority of passenger cars and trucks are 
operated on rich mixtures suitable for maximum power but very 
wasteful from the standpoint of gasoline economy; the average 
carburetor is set for winter operation and is not changed in the 
summer. The public does not appreciate the saving in gasoline that 
would result from the use of lean mixtures. 

1 Fieldner, Straub, and Jones, Automobile Exhaust Gases and Vehicular- 
tunnel Ventilation, Jour. Soc. Aut. Eng., April, 1921, pp. 295-305. 



298 THE MOTOR-FUEL PROBLEM 

(4) In addition to the improvement in respect to fuel economy 
attainable with the presenl type of motor, the possibility of a radical 
revision in engine type should be borne in mind. The injection type 
of high-compression engine, which could burn all types of liquid 
fuels, is thought by some engineers to have been underestimated in 
this country. The steam engine also has its advocates, and there 
are other possibilities such as the gas turbine, which may not have 
been sounded. The future in these respects can scarcely be foreseen, 
although the development of automotive transportation to its 
present status on the basis of a carburetion engine places the power- 
ful force of standardization behind the existing type. 

Changes in the Fuel. — It has been seen that the supply of motor- 
fuel has been maintained thus far mainly by a volumetric increase 
in the output of crude petroleum, supplemented by a physical con- 
version of the heavy molecules of distillate fuel oil by cracking 
into gasoline. Should the demand exceed the combined ability of 
these first two expedients, as seems inevitable, mechanical changes 
in the appliance and chemical changes in the fuel, both already 
beginning to come into evidence, will be called into action in still 
further degree. It thus appears that there are four major factors 
involved; volumetric increase in the supply; physical changes in the 
fuel; mechanical changes in the appliance; and chemical changes in 
the fuel. 

The possibilities of adding to petroleum distillates certain com- 
pounds, such as benzol, aniline, or alcohol, which will increase the 
operating efficiency of the fuel in existing appliances and even permit 
the appliance to change in directions making for greater efficiency, 
have already been touched upon. (See Chapter XXI.) Such pos- 
sibilities also raise the question of whether changes may not be 
attainable in petroleum refining which will enable certain properties 
to be directly fabricated into the fuel such a& will adapt it to more 
efficient utilization. This field has been largely overlooked in the 
past and holds considerable promise. 

Coordination of Engine and Fuel. — The outstanding feature of 
the motor-fuel problem is the interdependence of the fuel and appli- 
ance, and the degree to which any change in one has an immediate 
bearing upon the other. The most difficult problem ahead is not 
the matter of engineering and research, but the economic issue of 
adjusting the efforts in respect to both fuel and appliance to the end 
that the maximum service may be gained from automotive transpor- 
tation. The supply and price of fuel represent the limiting factors 
in automotive transportation and the best efforts of all concerned 
are needed to hold off restrictions on this score. 



COORDINATION OF ENGINE AND FUEL 299 

Volumetric increases in supply have apparently been shoved 
almost to their maximum; the physical process of cracking holds 
further possibilities of expansion, although already called into 
extensive use; mechanical changes in the appliance give promise of 
considerable extension ; and chemical changes in the fuel offer further 
possibilities. Upon the interplay of these factors, the future of 
automotive transportation rests. Much will depend upon the degree 
to which this interplay is brought under control in a united, con- 
structive effort to solve the problem. 



CHAPTER XXIII 
THE CITY-GAS PROBLEM 

The manufacture of city-gas, widely used in American municipal- 
ities, is at present dependent upon one of the petroleum products, 
gas oil, for its principal raw material. The growing fuel require- 
ments of automotive transportation have recently set up a counter 
demand for gas oil for use in the manufacture of a supplementary 
supply of gasoline, and this competitive demand in 1920 critically 
restricted the supply of gas oil available for the manufacture of gas 
as well as sharply advanced its price to a level which the gas com- 
panies could meet only under a substantial increase in the rates 
charged for city-gas. 

Upon the further development of the petroleum situation, the 
supply of gas oil may be expected to become still more restricted 
in volume and progressively higher in price, until finally it will be 
generally apparent that the manufacture of city-gas can no longer 
economically rely upon this source of supply, and attention will then 
turn toward making gas without the use of gas oil. Gas of this 
character can be readily and cheaply manufactured, but its wide- 
spread development will entail changes in the present installations 
and revision in the standards of concentration now imposed by the 
municipalities upon the public utilities serving gas. Such changes, 
however, are inevitable and are already overdue. 

Types of City-gas. — There are four principal types of manufac- 
tured gas employed in American cities: carburetted water-gas, coal- 
gas, oil-gas, and coke-oven gas. 1 The relative importance of these 
four types is shown in Fig. 138, where the dominance of carburetted 
water-gas is apparent. 

Carburetted water-gas is made by passing steam through incan- 
descent coke or anthracite coal, and enriching the resultant water-gas 
with gas oil. Average practice requires about 3.5 gallons of gas oil 
and 35 pounds of coke or anthracite to yield a thousand cubic feet 
of city-gas of present-day quality. 

1 A good general description of the main types of city-gas appears in Stand- 
ards for Gas Service, U. S. Bureau of Standards, Cir. No. 22, 1920. 

300 



DEVELOPMENT OF CITY-GAS 



301 



322 



CARBURETTEO 
WATER-GAS 



Coal-gas is made by distilling a volatile, bituminous coal in closed 
retorts, leaving a residue of coke to be disposed of. In many instances, 
the coke is employed in turn as a raw material for the manufacture 
of carburetted water-gas which is then 
mixed with the coal-gas. 

By-product coke-oven gas is an 
incidental product to the manufacture 
of metallurgical coke, and is available 
for use in some cities located in the 
neighborhood of industrial coke-making 
establishments. 

Oil-gas is made entirely from oil, 
and is manufactured only in the Far 
West where gas-making coals are not 
readily available. 

Development of City-gas. 1 — The 
earliest practical application of gas 
was made toward the close of the 
eighteenth century in England. In 
1812 the City of London Gas Light 
Company was formed, and in 1816 
gas-lighting was introduced into Balti- 
more in this country. 

Gas accordingly developed as an 
illuminant, and quite naturally its 
value was determined by its illuminat- 
ing capacity. In the early stages of 
the industry, therefore, gas came to 
be measured in terms of its candle- 
power, the intensity of light produced 
when burned in an open-flame burner 
under specified conditions. Practically 
all of the gas manufactured in the early 
days of the industry was coal-gas. 

Around 1880 a method was de- 
veloped for rendering water-gas, which 

could be much more cheaply manufactured than coal-gas but 
lacked luminosity, available for illumination by enriching it with 
gas oil. Since that time, carburetted water-gas has enjoyed a rapid 
growth in the United States, far outdistancing the city-gas manu- 
factured by other methods. The expansion of the carburetted water- 

1 For a constructive discussion of the gas situation, see R. B. Harper, City-gas 
of the Future, Jour. Western Society Engineers, January, 1921, pp. 1-15. 



FIGURES ARE MILLIONS OF M. CU. FT. 

Fig. 138. — Estimated production 
of artificial city gas in the 
United States in 1919; data from 
American Gas Association. 



302 THE CITY-GAS PROBLEM 

gas process was made possible by the era through which the petro- 
leum supply was passing, with production crowding demand and 
yielding a cheap and abundant supply of gas oil to the gas manu- 
facturer. 

In the meantime a gradual but almost complete revolution in the 
utilization of gas has been taking place, accompanied of late years by 
profound economic changes in the petroleum supply, but the processes 
of manufacturing gas remain to-day practically unchanged. For 
the first sixty or seventy years following its introduction in this 
country, city-gas was almost solely used for lighting houses and 
streets by means of open flames depending for their luminosity 
upon certain hydrocarbons derived from volatile bituminous coals 
or gas oils, which emitted considerable light when the gas was burned 
without sufficient air to maintain complete combustion. In contrast 
to this practice, city-gas is now used almost exclusively for its heating 
effect gained from the so-called Bunsen, or non-luminous flame. This 
type of flame is designedly non-luminous, sufficient air being mixed 
with the gas before it reaches the zone of ignition to lead to complete 
combustion, leaving no unburned particles to become incandescent. 
This mode of combustion gives higher efficiency and flame intensity 
than the open-flame method which enjoyed its luminosity at the 
expense of these qualities. The luminous flame is now practically 
obsolete, and the Bunsen flame is employed in almost all gas-burning 
apparatus, such as ranges, stoves, water-heaters, and mantle lights. 
The development of the incandescent mantle emancipated even 
gas-lighting from its dependence upon potentially luminous con- 
stituents in the gas. 

In spite of this revolution in the utilization of gas, many munici- 
palities still require the gas companies to continue to introduce into 
the gas these hydrocarbons, as if the product were going to be used 
in the old-fashioned open-flame burners; and in 1920 these same 
municipalities even granted substantial increases in rates in order 
that the gas companies might afford to buy the costly hydrocarbons 
requisite to cater to a need long since non-existent. Such was the 
situation in New York City, the largest gas-consuming center in the 
country. 

The change in the method of utilizing city-gas has resulted in a 
tendency on the part of the regulating authorities to impose upon the 
gas manufacturers heating-value standards in addition to the existing 
candle-power requirements. In many localities, however, the public 
utility commissions have discarded the candle-power requirements, 
though still maintaining heating-value standards substantially the 
same as those characteristic of gas meeting the discarded candle- 



THE ROLE OF GAS OIL 303 

power requirements. Thus, it has happened that heating-value 
standards have been determined for the most part on the basis of 
what happened to have been the heating value of the gas designed to 
be used in luminous flames, and " not on the basis of processes which 
were designed to economically utilize the gas-making materials, as 
provided by Nature, in such a manner as to produce the greatest 
total heating value per unit." In short, the presence of costly 
hydrocarbons in the gas is still required to meet the heating standards 
imposed as an inheritance from the days of candle-power requirements. 

Accordingly, the manufacture of city-gas to-day is handicapped in 
many instances by obsolete lighting standards, and in all instances 
by heating standards involving but little diminution from the old 
candle-power requirements. Wherever the obsolete form has been 
discarded, the old substance has been preserved. 

The Role of Gas Oil. — The function of gas oil is to add to the gas 
those hydrocarbons needed to enable the gas to meet the candle- 
power or heating-value standards imposed by law. Water-gas 
before the addition of gas oil, has a heating-value of only 300 
B.t.u. 1 per cubic foot, whereas the standards usually prevailing for 
city-gas run from 520-600 B.t.u. The additional B.t.u. are con- 
tributed by the gas oil. The resulting gas is more concentrated than 
the straight water-gas and meets the legal requirements, but has no 
advantage in utilization where the Bunsen flame is employed, since 
gas of whatever concentration must be diluted w r ith air to a combus- 
tible mixture carrying only about 100 B.t.u. to the cubic foot before 
it can be efficiently burned. 

The Growing Stringency of Gas Oil. — Of recent years, especially 
since 1915, the supply of gas oil has come more and more under requi- 
sition as a raw material for cracking into gasoline. In 1920 approxi- 
mately 12 to 15 million barrels of gasoline were made from gas oil, 
requiring some 30 to 40 million barrels of the latter. The growth of 
this new demand for gas oil has been rapid, and has introduced a new 
and perplexing factor into the city-gas problem. The effect has 
already registered in three directions. 

In the first place, the quality of the gas oil has deteriorated, the 
gas oils highest in carburetting quality having been partly diverted 
into cracking stills and their place taken by heavier oils less susceptible 
to yielding gaseous hydrocarbons. Cracking into gasoline in the oil 
refinery and cracking into oil-gas in the gas plant, indeed, are very 
similar processes. The trend in the average quality of gas oil is 
shown in Fig. 139. 

1 B.t.u. is the abbreviation for British thermal unit, the quantity of heat 
required to raise 1 pound of water 1 degree Fahrenheit. 



•MH 



tHE CITY-GAS PROBLEM 



In the second place, there has been a tendency to reduce the 
quantity of gas oil used, as a result of cutting as closely as possible 
to the minimum limits of the B.t.u. standard as well as slightly lower- 
ing this standard in some lo- 



THOUSANDS 
OF B.T.U. 



200 
















JB- T, u 


-£°*r*. 


BUTEDB 


)L£^£2!<-- 


h 


100 

90 
80 

70 
60 
50 






il^Uo 












H 












O. 












'< 



























1915 1916 1917 1918 1919 



cali ties. The tendency toward 
the use of a tapering quantity 
of gas oil per M cubic feet of 
gas is shown in Fig. 140. 

In the third place, a notable 
advance in the price of gas 
oil has taken place, which has 
considerably increased the cost 
of manufacturing gas. In 

Fig. 139.— Deterioration in the quality of 1914 > 1 cent ' s Worth of gas oil 
gas oil, 1914-1920; data from R. B. Harper, contributed to the finished gas 

over twice the number of 
B.t.u. derived from 1 cent's worth of generator fuel (coke or 
anthracite). Since that time, the relative contribution made by 
gas oil has been decreasing more rapidly than the contribution 
made by generator fuel, until in 1920 the cost of heat units of gas- 
oil origin was higher than that GALLONS 
of an equivalent number produced 
from generator fuel. The tend- 
ency for gas oil to impose a 
growing burden of expense upon 
the manufacturing process is 
shown in Fig. 141, which also 
suggests that the divergence is 
going to increase still further. 

The Impending Shortage of 
Crude Petroleum. — A tightening 
up in the supply of gas oil has 
already taken place under the in- 
fluence of the gasoline require- 
ments of automotive transpor- 
tation, in spite of a rapidly 
mounting output of crude pe- 
troleum. In view of the relative 

smallness of the petroleum reserve, both in this country and 
Mexico, and the close approach to the maximum rate at which this 
reserve may be drawn upon, the supply of crude petroleum will 
inevitably display a retardation in its growth which will restrict the 
volume of products available for consumption. (See Fig. 142.) 



4.20 
















\ 
















\4 










3.80 
3.70 






\c 


\ 




















1915 1916 1917 1918 1919 1920 

Fig. 140. — Trend in the use of gas oil 
per thousand cu. ft. of carburetted 
water-gas manufactured in the United 
States by years, 1915-1920; data from 
R. B. Harper. 



USE OF GAS OIL ALREADY UNECONOMIC 



305 



This outcome may be expected to impair still further the availability 
of gas oil and contribute an additional and continuing impetus to its 
upward move in price. 

Use of Gas Oil Already Uneconomic. — The relative increase in 
the price paid by a typical gas company for gas oil and generator fuel 



PER CENT 

200 









































































A 












\ 






</ 








, 




<\GE 


NERATOR 


FUEL / 


/ 








\ 








/ 




























GAS OIL 


N\ 




v 


i 
I 
1 
f 


X 

X. 
X 

X 














\ 


V 


\{ 
















\ 


K 


\ 






OPERATING 
D COURSE A 


FIGURES 
HEAD 














■_ — _■■ PROJECTE 



1914 



1915 1916 



1917 



1918 



1919 



1920 1921 



1922 



Fig. 141. — Trend of the contributions to the heating value of carburetted water- 
gas made by one cent's worth of gas oil and generator fuel, in percentages 
of the contributions made in 1914; data for 1914-1920 from R. B. Harper; 
projection, 1921-1922, by author. 

for the period, 1914-1920, is shown in Fig. 143. The average cost of 
gas oil to a large number of gas companies is given in Table 119. 

It is apparent from the data given that the sharp upward trend 
in the price of gas oil, which arises in the main from fundamental 
changes in the petroleum situation, is rendering the use of gas oil 
increasingly costly. Fig. 144 shows plainly the weight of this factor 
in the cost of gas. A cubic foot of typical carburetted water-gas 



30G 



Ti [£ CITY-GAS PROBLEM 



containing 570 B.t.u. may be looked upon as composed of 300 B.t.u. 
contributed by generator fuel and 270 B.t.u. derived from gas oil. 
Several years ago the 270 B.t.u. cost about the same as the 300 B.t.u. 
In 1920 the 270 B.t.u. were much the more costly, and the tend- 
ency is toward a growing discrepancy between the two. In other 
words, so far as the cost of materials is concerned, the use of gas oil 
in manufacturing city gas has become fundamentally uneconomic, 




493V - 



f- 



Fig. 142. — The unmined reserve of crude petroleum in the United States; after 
R. B. Harper, based on data from U. S. Geological Survey 

in spite of a temporary reversal in 1921. Accordingly, the manu- 
facture of carburetted water-gas has passed through its period of 
usefulness and is now obsolescent because of the diversion of its 
principal raw material into a channel of higher economic rank. 

Increase in Gas Rates no Solution. — The growing cost of gas oil 
has borne heavily upon the cost of manufacturing gas, as indicated 
in Fig. 144, and the gas companies met the situation by entering 
pleas for higher rates, which in most instances were granted. 
While increases in gas rates will support a rising price of gas oil 



INCREASE IN GAS RATES NO SOLUTION 



30- 



and for a time enable the gas companies to continue to compete 
with automotive transportation for this raw material, such increases 
will not alter the fundamental situation; they represent, on the 



PER CENT 
500 



400 



300 
250 

200 



lOO 
90 













/ 




















GAS 


OIL 


// 












/ 




















ATOR-FUE 

































































1915 



1916 



1917 



1918 



1919 



1920 



Fig. 143. — Rise in the average price of gas oil and generator fuel, 1914-1920, in 
percentages of the average prices in 1914; data from R. B. Harper. 



Table 1 19. — Average Cost of Gas Oil to a Large Number of Gas Companies 

by Years, 1910-1920 

(Data from American Gas Association) 



Year 


Cents per 
Gallon 


In Per Cent 

of Price in 

1913 


Year 


Cents per 
Gallon 


In Per Cent 

of Price in 

1913 


1910 
1911 
1912 
1913 
1914 
1915 


3.08 
2.96 
3.40 
4.35 
4.35 
3.57 


71 

68 

78 

100 

100 

82 


1916 
1917 
1918 
1919 
1920 


4.14 
5.76 
7.90 
7.05 
12.62 


95 

132 
182 
162 
290 



contrary, a temporizing measure but no final solution to the prob- 
lem. In fact, a succession of such increases in gas rates will insti- 



308 



THE CITY-GAS PROBLEM 



tute a cycle which will react upon the price of gasoline as well as 
upon the price of city-gas, playing the two against each other with 
neutral effect and leaving the basic issue still unsolved. 

Fundamental Changes in Gas Manufacture Necessary. — Suf- 
ficient evidence is now available to indicate that the manufacture 







/ 
/ 
/ 


V36V 








/ 


y. 2 ?y. 








1 

1 
1 
1 

1 
1 

1 
1 

1 


]*X 5 !'. 




> GAS OIL 




/ 

/ 

/ 


r.iV\ 




.' • ' 1 1 • I 






1 


\ 


m 




WW/, 


GENERATOR 


1 


> FUEL 


i 



1916 1917 1918 1919 1920 

FIGURES IN RECTANGLES ARE THE COST IN CENTS OF THE MATERIALS ENTERING 
INTO THE MANUFACTURE OF lOOO CU. FT. OF CARBURETTED WATER-GAS 

Fig. 144. — Relative cost of the quantity of gas oil and generator fuel entering 
into the typical manufacture of 1000 cu. ft. of carburetted water-gas, by 
years, 1916-1920. 



of carburetted water-gas must give way to other processes more 
suitable to the changed conditions of fuel supply. The outstanding 
fuel dependency of this country is bituminous coal, and the city- 
gas of the future must be derived from this source. The conditions 
requiring the use of a concentrated, luminous gas are no longer 



A TRANSITION PERIOD AHEAD 309 

existent; and the means for preparing such a gas cheaply are no 
longer attainable. The situation has finally advanced to the point 
where there is no choice in the matter. The methods of manu- 
facturing city-gas are bound to undergo fundamental changes in the 
next decade, and economic pressure may dictate more rapid altera- 
tions than appear practicable at the present moment. The changes 
that appear inevitable lie in the direction of complete gasification 
of bituminous coal, with the preparation and distribution of a less 
concentrated gas than that now in general use in cities. 

B.t.u. Standards Will be Lowered. — At the present time the situ- 
ation is crystallized and progress blocked by virtue of the legal B.t.u. 
standards in vogue which do not admit of processes yielding low-cost 
gas because such gas is invariably leaner than the standards require. 
There has already come into evidence a distinct downward trend in 
heating-value requirements; some municipalities now have a 520 
B.t.u. minimum, whereas in Canada a 450 B.t.u. standard has been 
established. It is inevitable that the present high standard will be 
removed by degrees and the field thus opened to the employment 
of modern and efficient means for manufacturing gas. 

A Transition Period Ahead. — In addition to the obstacle of high 
heating-value requirements, which is an inheritance from the days 
when gas was burned in open-flames for purposes of illumination, 
progress toward gaining low-cost gas will be retarded by the past 
failure to prepare for the obsolescence of present installations and 
equipment — a failure which leaves a vast investment amortized to 
an insufficient degree as well as a wide range of equipment which 
can be adapted to the new conditions with difficulty. The situation 
is indeed perplexing and raises problems of the first magnitude — 
problems, too, made none the easier because they lie in the field 
where public oversight is exercised in a manner unfortunately lack- 
ing in technical proficiency. 

The transition to low-cost gas, however, can be made, and the 
gas industry emancipated from its present dependence upon gas oil, 
if constructive and concerted attention be accorded the matter. A 
graded reduction in B.t.u. standard, accompanied by a decrease in 
the quantity of oil employed as well as by a change to heavier 
oils not so desirable for cracking into gasoline, will result in a period 
of transition during which present installations may be utilized 
while the requisite new developments are gradually brought into 
action. 

City-gas of the Future. — With American cities served at present 
by carburetted water-gas, coal-gas, oil-gas, and coke-oven gas, not 



310 THE CITY-GAS PROBLEM 

to mention a declining supply of natural gas, it appears inevitable 
that those processes dependent upon oil must inevitably give way in 
favor of other established methods or new processes. 

One of the cheapest and most efficient methods already estab- 
lished for manufacturing gas is the generation of straight water-gas 
from coke or anthracite coal. This yields a relatively dilute gas of 
about 300 B.t.u., which consequently cannot be used under existing 
standards, without being enriched with gas made from gas oil. Coal- 
gas is manufactured in many cities, but while this type of gas is of 
requisite concentration to meet existing standards, its installation is 
costly and it yields a large output of coke which must be disposed of 
as fuel; gas-house coke has not proved to be a wholly satisfactory 
fuel and its sale has not been altogether regular or profitable. In 
some municipalities the coke from the coal-gas retorts is used in turn 
as generator fuel in water-gas sets, the resulting water-gas being 
mixed with the coal-gas to yield a gas of about 350-450 B.t.u., 
which is then raised to the desired heating-value by the admixture of 
oil-gas. The production of this mixed gas is the most economical 
established procedure under the majority of conditions to-day. The 
process is also aided by the recovery of some of the by-product values 
in the coal-gas retorts. 

Considerable improvements are immediately possible in the man- 
ufacture of mixed gas, through the combination of the coal-gas and 
water-gas generation into practically a continuous process, which 
will yield much better heat economy and hence lower operating costs 
than now prevalent. At the same time, as B.t.u. standards are 
lowered, a decreasing quantity of oil may be employed in the enrich- 
ment, until the use of gas oil is done away with entirely, approxi- 
mately a 400 B.t.u. gas being the end-product then distributed. Such 
a gas is an ultimate, rather than an immediate, desideratum, since its 
use would entail modifications in existing appliances and methods of 
distribution. The economic pressure already in evidence will 
inevitably force developments into this channel, which admits not 
only of the fullest use of present installations and equipment but also 
is nearest in line with the stable source of fuel supply. 

The whole field of development in respect to gas has been rela- 
tively stagnant, but once the barrier of an outworn thermal standard 
is broken down and the inertia that has always characterized the 
gas situation is supplanted by a vigorous sense of the latent possibil- 
ities in gas, substantial progress may be expected. The field of 
city-gas enmeshes closely with the undeveloped possibilities of gas in 
respect to industrial heating and even power application; and once 
the production of city-gas is placed upon a low-cost basis, soundly 



CITY-GAS OF THE FUTURE 311 

grounded in the complete gasification of bituminous coal, and proper 
attention is accorded the efficiency of utilization, the full possibilities 
of this mobile form of energy may begin to be realized, with incalcul- 
able benefit to all concerned. In all progressive municipalities gas 
must eventually largely supersede raw coal in the homes and factories; 
not until then may the city-gas problem be regarded as solved. 1 

1 For a further discussion of the potentialities of gas, see Gilbert and Pogue, 
America's Power Resources, New York, 1921, pp. 184-213. 



CHAPTER XXIV 
INTERNATIONAL ASPECTS OF PETROLEUM 

Until a few years ago the oil deposits of the United States were 
generally regarded as ample to supply her needs. The production of 
crude petroleum, indeed, increased so rapidly that organized effort 
was directed mainly toward enlarging the domestic demand and 
finding additional outlets abroad. Once fairly under way, however, 
the demands for the products of petroleum have expanded at a 
geometric rate until the problem of finding a sufficient volume of 
raw material to meet future requirements is of paramount impor- 
tance. Within a short space of time, there has been a reversal from 
a situation in which production was forcing new outlets to one in 
which an insistent demand is seeking assurance of an adequate 
supply. 

Two factors have accentuated this change. The war brought 
petroleum to the front as a necessity of the first rank; and a realiza- 
tion of a limitation in supply has come into account. The inability 
of the domestic petroleum resource to meet fully the responsibility 
which it has engendered is directing attention in growing measure 
to foreign sources of supplemental supply. Thus the United States 
is projected into the international struggle for oil and is facing a 
new range of complications in this field. 

Political and Commercial Control of Oil Production. — The oil 
production of the world 1 may be classified according to the national- 
ities exercising political control of the productive areas or according 
to the commercial interests directing their exploitation. During 
the war the U. S. Bureau of Mines analyzed the mineral resources 
of the world in these two respects, 2 and the results for petroleum are 
shown in Fig. 145 and Table 120. 

It is apparent from Fig. 145 and Table 120 that in 1917 the United 
States exercised political (or territorial) control over 67 per cent of 
the petroleum produced throughout the world, and commercial 

1 See pp. 52-53 for statistics on the world's production. 

2 The results of this investigation were published by J. E. Spurr, Political 
and Commercial Geology and the World's Mineral Resources, New York, 1920. 
Chapter I, on petroleum, is by John D. Northrop. 

312 



POLITICAL AND COMMERCIAL CONTROL 



313 



(financial) control over a slightly greater part, 72 per cent. Pro- 
portions of substantially the same order of magnitude obtain for 
1920. 

Table 120. — Political and Commercial Control of the World's Output of 

Petroleum in 1917 

(After John D. Northrop) 



Country 


Pro- 
duction, 
Millions of 
Barrels 


Country Exercis- 
ing Political 
Control 


Nationality 

of Dominant 

Commercial 

Interest 


Approximate 

Extent of Control 

by Dominant 

Interests, 

Per Cent 


United States 

Russia 


335 
69.0 
55.3 
12.9 

8.08 

6.86 
5.97 
2.90 
2.68 
2.53 

1.60 
1.14 
3.04 


United States 
Russia 
Mexico 
Holland 

Great Britain 

Persia 
Poland (?) 

Japan 
Rumania 

Peru 

Great Britain 

Argentina 
Miscellaneous 

United States 


United States 
British-Dutch 
United States 
British-Dutch 
Great Britain 

Great Britain 

Germany 

Japan 

British-Dutch 

United States 

Great Britain 

Argentina 
Miscellaneous 

United States 


96 

40 

65 

100 

100 

100 

100 

100 

36 

70 

80 
100 


Mexico 


Dutch East Indies . 
India 


Persia 


Galicia 

Japan and Formosa 

Rumania 

Peru 

Trinidad 


Argentina 


Others 

Total 


507 


72 



Political and Commercial Control of Oil Reserves. — The control 
of oil reserves is an entirely different matter from the control of oil 
production, although the two have not been clearly distinguished 
in all discussions of the matter. During the past few years, pro- 
found changes have been made in the political and commercial map 
of the world, and while many of these changes are still in doubt and 
hence to be spoken of with due reservation, there is an unmistakable 
correlation to be observed between the territorial adjustments and 
the unmined supplies of petroleum. (See Fig. 146.) 

While the petroleum reserves outside the United States are still 
unmeasured, except in a provisional manner, the available evidence 
tends to indicate that approximately seven-eighths of the petroleum 
remaining to be produced in the world lies outside the boundaries of 
this country. In other word, though exercising territorial command 
of over two-thirds of the world's actual production of petroleum, this 



314 



INTERNATIONAL ASPECTS OP PETROLEUM 



POLITICAL CONTROL 

(TERRITORIAL) 



COMMERCIAL CONTROL 
(FINANCIAL) 






.BRIJ.E.MP; 2$ 




STAT I 



country possesses political 
control over only something 
like one-eighth of the re- 
source. In the face of this 
circumstance, and in view 
of the fact that the United 
States consumes over half 
of the petroleum products 
turned out and supplies 
over three-quarters of the 
world's requirements in re- 
spect to these commodities, 
the American petroleum in- 
dustry is seeking to extend 
its commercial control in 
foreign fields. 

On page 24, Fig. 6, is 
a map of the world, com- 
piled by the U. S. Geological 
Survey, showing the loca- 
tion and estimated size of 
the petroleum reserves of 
the world, together with 
an indication of some of 
the broad features of polit- 
ical control obtaining at 
the time the map was pre- 
pared in 1919. The map 
brings out the concentra- 
tion of the oil reserves in 
five regions: the United 
States, the area bordering 
the Caribbean Sea, the re- 
gion adjacent to the Caspian 
Sea, the Far East, and 
southern South America. 
The map affords an inter- 
esting key to many of the 
recent moves in the game of 
world politics. 

New Problems in Pe- 
Fig. 145— Political and commercial control of troleum Exploitation. — In 

the world's production of crude petroleum extending commercial ac- 

in 1917; after Spurr and Northrop. 




) /brit. em P. J 



NETHERLANDS 



GERMANY 2 ^ 



■ V 

ALL OTHERS 
lO i 



THE PROBLEM OF NATIONALIZATION 



315 



tivities into foreign territories, the American petroleum interests 
are encountering two problems of outstanding importance, new 
to the exploitation of petroleum in this country. These are: A 
tendency toward the nationalization of the petroleum resource, 
especially marked among the smaller independent countries, par- 
ticularly in the Caribbean area and in southern South America; 
and keen international rivalry in the Old World on the part of the 
industrial powers, with the situation already far advanced toward 



PRODUCTION 
1920 



RESERVES 

(ESTIMATED) 




OTHER COUNTRIES 



UNITED STATES 



Fig. 146. — Chart showing the proportions of the world's production and reserves 
of crude petroleum in the territory controlled politically by the United 
States. 



an exclusive understanding and a division into definite spheres of 
influence. Throughout both fields there runs as well the keen 
commercial rivalry common to business enterprise. 

The Problem of Nationalization. — The Latin-American countries, 
in which the ownership of the natural resources in the colonial days 
was vested in the crown, are showing a growing tendency to retain 
and even reinstate the petroleum rights under the sovereignty of the 
nation. Of the Latin-American countries — the states coming under 
the sphere of the Monroe Doctrine — ownership of the oil in the 



316 INTERNATIONAL ASPECTS OF PETROLEUM 

ground rests in the government in Bolivia, Costa Rica, and Venezuela, 
and in part in Argentina, Colombia, and Ecuador; while movements 
further to vest oil rights in the state are in progress in Colombia, the 
Dominican Republic, and Mexico. 1 This policy in Mexico has 
naturally attracted the widest notice, because of the extensive 
petroleum developments in that country; the new constitution of 
1917, with its famous Article 27 declaring " in the nation is vested 
direct ownership of all minerals, petroleum, and hydrocarbons," and 
arousing the fear of its retroactive application, has already become 
a point at issue between the foreign operators and the Mexican 
Government. 

The extent to which this movement toward nationalization of the 
petroleum reserves will go cannot be foreseen, but the consequences 
will undoubtedly be in the direction of limiting the degree to which 
outside commercial control may be gained and slowing down the rate 
at which the resources may be developed. 

National ownership of the oil in the ground is not confined, of 
course, to the Latin- American countries, being true in varying degree 
of France, the United Kingdom, the British Colonies, Slovakia, and 
Russia. 

The Problem of International Rivalry. — Oil has become so essen- 
tial to modern civilization that other industrial nations are aggres- 
sively seeking both commercial and political control over oil-bearing 
territories. Efforts toward enlarging political control have appar- 
ently been confined to the Eastern Hemisphere, though commercial 
activities have been extended over the entire world, especially by 
British, Dutch, and French interests. In some directions, the polit- 
ical and commercial efforts have joined hands. The Government of 
Great Britain, for example, " has established a petroleum adminis- 
tration; owns a controlling partnership with veto powers on the 
board of directors in the Anglo-Persian Oil Company, which con- 
trols the oil resources of the greater part of Persia; gives financial 
assistance to its nationals engaged in oil development and is in every 
possible way promoting the acquisition by companies under British 
control or companies exclusively British, of oil reserves in all coun- 
tries, including our own." 2 

Petroleum has also become involved in the administration of the 
mandate territories that grew out of the war. At San Remo in 
April, 1920, Great Britain and France negotiated an agreement 
" based on the principles of a cordial collaboration and reciprocity 

1 See David White, The Petroleum Resources of the World, Annals of the 
American Academy, May, 1920. See also Congressional Record, May 17, 1920. 

2 White, op. cit., p. 21. 



THE SIGNIFICANCE OF OCEAN SHIPPING 317 

when the petroleum interests of the nations can be negotiated to 
advantage/' which agreement " may be extended to other countries 
by mutual consent," whereby the two countries party to the agree- 
ment would enjoy certain advantages in developing the petroleum 
resources of Rumania, Asia Minor, territories of the former Russian 
Empire, Galicia, the French colonies, and the colonies of the British 
Crown. 1 This Project of Agreement resulted in the interchange 
of notes between Great Britain and the United States, with special 
reference to Article 7 relating to Mesopotamia, the United States 
claiming equal oil privileges in mandate territory, with Great Britain 
maintaining that the San Remo agreement was based upon concessions 
granted to British nationals by the former Turkish government. 

International rivalry for petroleum has led to restrictive legisla- 
tion on the part of some countries favoring exploitation by their 
own nationals, and in this wise a new phase of nationalization has 
been projected into the problem. 

The Significance of Ocean Shipping. — The advantages of fuel oil 
for ocean transportation and naval operations have undoubtedly 
played an important part in determining the policy of Great Britain 
in acquiring foreign reserves of petroleum, while these factors have 
also influenced the activities of the United States. The suggestion 
has also been advanced that the growing social consciousness of the 
coal-miners in Great Britain has been an added incentive for an 
active development of a petroleum supply. At any rate, the sig- 
nificance of oil in the maritime field is a sufficient explanation of the 
world-wide interest that has been taken in oil. The question, there- 
fore, arises as to whether the world's supply of petroleum is suffi- 
ciently great to sustain automotive transportation on land, lubri- 
cate the wheels of industry and commerce, and support the revolu- 
tion in ocean shipping to an oil-burning basis. It is by no means a 
foregone conclusion that the merchant marine of the world can 
count upon a supply of oil sufficiently cheap to sustain its operations 
for more than a relatively brief period of years. 

There are approximately 55 million tons of steam shipping in the 
world, and roughly speaking its entire conversion to an oil-fired 
basis would require an annual consumption of over 500 million barrels 
of oil, or nearly the total quantity of petroleum produced in the world 
to-day. The unit consumption, of course, can be reduced consider- 
ably by the universal adoption of Diesel engines; but at best the oil 
consumption would still be of outstanding size. 

The utilization of oil by ocean shipping, however, is limited more 
directly by the matter of price, and there are many reasons for 
1 See M. L. Requa, The Petroleum Problem, 1920, pp. 35-36. 



318 INTERNATIONAL ASPECTS OF PETROLEUM 

believing thai petroleum to date has been produced abnormally 
cheap, if not actually at a sub-economic level. Once the flush pro- 
duct i:m of the richest deposits are exhausted and once the efficient 
utilization of the higher-rank petroleum products is gained, even 
ocean shipping may be forced largely to abandon the use of this 
product. Such possibilities seem to have been generally lost sight 
of, under the competitive spur of the advantages offered by oil at 
the present price-level. But whatever the future of oil, the fact 
remains that it is now definitely involved in competitive shipping 
efforts, and a growing use in this direction will probably be seen for 
some time at least. 

Suggested Lines of Action.— It is thus apparent that petroleum 
has been projected into the international arena as an issue of the first 
magnitude. Eagerly sought as a source of national power and indus- 
trial advantage, the remaining supplies have come in for intense 
competition, complicated by nationalistic, socialistic, and imperialis- 
tic aspirations. As a result of these conditions, the American petro- 
leum interests have met with restrictions in their efforts to extend 
commercial control into foreign fields. 

Various suggestions have been offered with a view to enabling 
the commercial interests of the United States to participate more 
fully in the development of foreign oil-deposits. Among the lines 
of action advocated are: Direct government participation in the 
development work; governmental support to private enterprise; 
vigorous diplomatic action to secure an open-door policy and equality 
of opportunity to all nations; the use of economic pressure and 
retaliatory measures to gain this end; and many others. The sug- 
gestions have mainly been in the direction of invoking some degree 
of political support for the commercial enterprises concerned, with a 
view either to winning entire equality of opportunity or else, failing 
that, to bring to bear counter restrictions of an analogous character. 

The Trend of the Situation. — The course of action likely to be 
followed by the major powers and the smaller nationalities in respect 
to petroleum cannot be foreseen, as this matter is involved in consid- 
erations of foreign and domestic policy that nowhere seems to be 
settled, complicated as the situation is by contending factions, con- 
flicting interests, and divergent social theories. 

The forces at play would seem to fall mainly into two catagories : 
the rivalry between Great Britain and the United States in seeking 
control of future supplies; and the perceptible tendency of the 
smaller independent countries to recognize the value of petroleum 
and restrict the exploitation of their internal deposits. As regards 
this whole matter, the widest diversity of statement has been given 



THE TREND OF THE SITUATION 319 

publicity in all parts of the world, while a far-reaching diplomatic 
and commercial game has been played behind the scenes. 

While the political outcome can only be guessed at, the economic 
result will undoubtedly be an intensive development of foreign fields, 
with the utilization of much of the output for some years to come 
mainly in the form of fuel oil. Barring international complications 
of a military nature, the oil production will presumably become 
available under the economic laws of commerce to all parts of the 
world where needed. The outstanding issue at present in the public 
eye seems to be the matter of political control, predicated in the last 
analysis upon commercial and military strategy; the greater need 
is for an efficient development and utilization of the remaining 
deposits in order that automotive transportation and industrial 
activity the world over may be sustained and developed. 

Whatever happens, the United States faces the physical fact that 
the supply of crude petroleum available for her use cannot continue 
to increase volumetrically at the rate enjoyed up till now. The 
output of crude petroleum in the United States has virtually reached 
its maximum; the proven fields of Mexico are well-nigh exhausted, 
and a marked falling off in imports from that source is to be antici- 
pated ; even under the most favorable circumstances, deposits further 
afield can scarcely be developed into major producers under five 
to ten years. Cheap and bountiful supplies of crude petroleum 
will soon be a thing of the past. The answer to the domestic petro- 
leum problem does not lie exclusively abroad; efficiency in produc- 
tion and utilization and supplemental sources of supply at home must 
share with foreign contributions the responsibility of sustaining 
those activities exclusively dependent upon liquid fuel. 



CHAPTER XXV 
MEXICO AS A SOURCE OF PETROLEUM 

The unique occurrence of petroleum in Mexico has resulted in a 
rapid and sensational depletion of the resource, and a widespread 
misconception as to the extent and future of its deposits. The con- 
centration of the proven oil in a restricted area and its ready suscep- 
tibility to extraction have stimulated an intensive campaign of devel- 
opment, which has succeeded in bringing the known supplies to the 
verge of exhaustion while at the same time lending a false sense of 
confidence in the magnitude of the proven reserve. The realiza- 
tion of the true situation is likely to come as a startling climax to a 
period of flush production, like the termination of the meteoric career 
of a single well. For, in the words of a recent speaker, " No pump 
has ever profaned the casing of any Mexican well. These wells are 
born into the full virility of their gigantic powers. They live like 
giants, straining at the chains that bind them, and they die as giants 
should, stricken as by a thunderbolt." 

Since oil was commercially developed in 1901, the production 
of Mexico has grown until that country has become second only to 
the United States in its contribution to the world's supply. First a 
substantial exporter of petroleum in 1911, Mexico in 1920 shipped 
112 million barrels of petroleum to the United States, and 41 
million barrels to other countries — 28 per cent of the world's entire 
output in that year. Already the United States is dependent upon 
Mexico for a fifth of her petroleum requirements. The position of 
Mexico is shown graphically in Fig. 147 and statistically in the follow- 
ing table (Table 121). 

The Oil-fields of Mexico. — Commercially productive deposits 
of petroleum are found in a narrow strip of territory in the Gulf 
coastal plain a few miles inland from Tampico and Tuxpam. This 
highly restricted area is responsible for practically the entire output 
of Mexican petroleum to date, and is the region to which reference is 
generally had when Mexican petroleum is referred to. This pro- 
ductive area is divided into two fields: the Northern, or Panuco, 
field, producing a heavy, viscous petroleum of 10°-13° Baume* 
gravity; and the Southern, or Light Oil, field, producing a lighter 

320 



THE OIL-FIELDS OF MEXICO 



321 



petroleum of 19°-22° Baume gravity, more suitable for refining than 
the heavy crude of the Northern field. The Northern field com- 
prises three pools: Ebano, Panuco, and Topila. The Southern field 
is a narrow, sickle-shaped area, about 40 miles long and half a mile 
broad, containing the following pools from north to south: Dos 
Bocas; Tepetate-Casiano-Chinampa; Amatlan-Naranjos-Zacamixtle; 
Toteco-Cerro Azul; Alazan-Potrero del Llano; Tierra Blanca; Alamo; 
and Molino. The approximate location of the various pools is shown 
in Fig. 148. Up to June 1, 1921, the Northern Field had produced 
152 million barrels, and the Southern Field had produced 492 million; 
while the current daily production was 130,500 barrels and 395,500 
barrels respectively. 



Table 121. — Comparative Production of Petroleum in Mexico 

(In millions of barrels) 





World's 


U. S. 


Mexican 


Mexican 

Exports to 

U. S. 


Total Mexican 


Year 


Production 


Production 


Production 


Exports 


1901 


167 


69.4 


0.01 






1902 


182 


88.8 


0.04 






1903 


195 


100 


0.08 






1904 


218 


117 


0.13 






1905 


215 


135 


0.25 






1906 


213 


126 


0.50 






1907 


264 


166 


1.01 






1908 


286 


179 


3.93 






1909 


299 


183 


2.71 






1910 


328 


210 


3.63 






1911 


344 


220 


12.6 




0.89 


1912 


352 


223 


16.6 


7.38 


7.62 


1913 


384 


248 


25.7 


17.8 


20.9 


1914 


404 


266 


26.2 


16.2 


22.9 


1915 


428 


281 


32.9 


17.5 


24.3 


1916 


461 


301 


40.5 


20.1 


26.7 


1917 


507 


335 


55.3 


29.9 


42.5 


1918 


515 


356 


63.8 


40.8 


51.8 


1919 


558 


378 


92.4 


57.6 


77.7 


1920 


688 


443 


163 


112 


153 



Outside of the territory described above, there are many areas 
which will doubtless become commercially productive in time, but 
such fields must first be prospected and developed. A clear dis- 



322 



MEXICO AS A SOURCE OF PETROLEUM 



tinction should be drawn between the proven oil-pools already 
approaching exhaustion, and the undiscovered and the undeveloped 
fields of the Republic, which have a significance that the future 
alone can disclose. 




I I i II I I 

1910 1915 



Fi<;. 147. — Production of crude petroleum in Mexico compared with the United 
States and all other countries by years, 1901-1920. 



Occurrence of Petroleum in Mexico. — In the Tampico-Tuxpam 
region petroleum occurs under highly specialized geological conditions 
without parallel elsewhere. The oil exists in cavernous reservoirs 
" under such conditions of enormous pressure, unrestricted mobility, 
and easy availability, as to enable its entire withdrawal from any 
of the important pools within a few months under the intensive 



OCCURRENCE OF PETROLEUM IN MEXICO 



323 



development campaign which has raged ... in the Mexican field." 
The important pools are found to contain from 100 to 150 million 
barrels of oil each; from the Los Naranjos pool in 1920 was taken 
95 million barrels, or two-thirds of its probable total content. 

The conditions of occurrence give rise to the largest producing 
wells in the world's history, both as to the volume of daily yield and 




Fig. 148.— Sketch map showing the location of the most important proven oil 
pools of Mexico. Many of the pools shown are extinct. (See text.) 



the total quantity produced. The Mexican wells have also displayed 
the peculiarity, unknown in the United States, of continuing to yield 
by their own pressure in undiminished volume so long as the flow of 
oil lasts. As in the oil-fields of the United States, the end of pro- 
duction comes through the inflow of water. But whereas in the 



324 



MEXICO AS A SOURCE OF PETROLEUM 



United States the water may be edge water, bottom water, or top 
water; in Mexico, it is bottom water upon which the oil floats under 
hydrostatic pressure. 

The size of the Mexican wells has led to optimistic assumptions as 
to the size of the resource. " The gusher condition in Mexico seems 
to indicate ease in exploiting, rather than such abnormally large 
pools as have been inferred from the great size of the gushers encoun- 
tered." 1 

In the United States, oil is found in a large number of widely 
separated pools, occurring in porous reservoir rocks under such con- 
ditions of pressure, mobility, and availability as to preclude its with- 
drawal except over a period of years, ranging up to forty years, but 
averaging perhaps fifteen years. The output of an oil-pool in the 
United States will consequently display a gradual diminution in vol- 
ume. In Mexico, the crowding of the productive pools into an 
exceedingly small area — all the important pools with the exception 
of the Panuco group occurring in one long narrow structure — and 
the concentration of the oil in each pool into an interconnecting series 
of cavernous openings under hydrostatic head, give rise to an imme- 
diate and sensational yield once the concentration is tapped. A 
production that in the United States would be gained through the 
agency of a thousand wells is achieved under Mexican conditions by 
a half dozen wells, or even a single well. This contrast is the key 
to the situation. It is clearly shown in the tabulation following: 

Table 122. — Comparison between the Production of Petroleum in Mexico 

and the United States at the End of 1920 

(After Ralph Arnold) 



Country 


Proven Pro- 
ducing Area, 
Sq. Mi. 


Production 

1920, 

Millions of 

Barrels 


Number 
Producing 
Wells, 1920 


Average 
Daily Pro- 
duction per 
well, 1920, 

Barrels 


Proven Oil 
Reserve, 

Millions of 
Barrels 


Mexico 


25 
4500 


163 
443 


200 

258,600 


2600 
4.9 


300-400 

6000* 


United States. . . . 



* From U. S. Geological Survey. 

The Salt Water Encroachment. — A normal oil-field, such as those 
of the United States, enjoys a brief period of flush production, fol- 
lowed by a period of settled production as the area is being drilled up, 
in turn succeeded by a long period of slow decline as the output of the 
individual wells gradually dwindles. The abnormal oil-field of the 

1 E. De Golyer, Mexico as a Source of Petroleum and Its Products, Society of 
Automotive Engineers, Feb., 1919, p. 2. 



THE UNMINED RESERVE 



325 



300-400 




ZACAMIXTLE 



•7.5 ■■.:• 



CERRO AZUL 



Tampico-Tuxpam region in Mexico is displaying the wholly distinct- 
ive characteristic of an accelerating 
output to the verge of exhaustion — its 
period of rapid, flush production will 
represent the major event in its history. 
Its decline is likely to be sudden and 
spectacular, like the end of the individ- 
ual well. 

The salt water, which underlies the 
oil and supplies the hydraulic pressure, 
is rapidly drowning out both the North- 
ern and Southern fields of the Tampico- 
Tuxpam area. The Dos Bocas, Tepetate, 
Casiano,Chinampa,and Potrero del Llano 
pools in the Southern Field were extinct 
at the beginning of 1921. During the 
early months of 1921, the Los Naranjos, 
Panuco, and Alamo pools were rapidly 
going to salt water. In August, the 
Amatlan pool became seriously affected. 
According to Arnold, " Panuco and Ebano 
apparently will continue for many years 
producing enough oil and a valuable mix- 
ture of oil and water to have an impor- 
tant bearing on the productivity of Mex- 
ico. This leaves Zacamixtle, a practically 
virgin pool, and Cerro Azul, a partly 
exhausted pool, the latter controlled 
by a single company, to furnish, with 
Panuco, the bulk of the proven future 
supply." 1 Since Arnold's analysis was 
made, a small pool, the Tierra Blanca, 
with an estimated reserve of 50 million 
barrels, has been brought in near the 
southern extremity of the Southern 
Field. 2 (See Fig. 148.) 

The Unmined Reserve. — The oil re- 
sources of Mexico, as previously noted, 
are represented by the proven area of 
the Tampico-Tuxpam region, and un- 

1 Ralph Arnold, The oil situation, Mining and Metallurgy, March, 1921, 
pp. 20-21. 

2 See L. G. Huntley and Stirling Huntley, Mexican oil fields, Mining and 
Metallurgy, Sept., 1921, pp. 27-32. 




LOS NARANJOS 



FIGUKES ARE MILLIONS 
OF BARRELS 

Fig. 149. — Estimated unmined 
supply of crude petroleum in 
the proven oil-pools of Mexico 
on Jan. 1, 1921; data in part 
from Arnold. 



326 MEXICO AS A SOURCE OF PETROLEUM 

developed territory in other parts of the country. The reserve 
available in the proven area at the beginning of 1921 was estimated 
by Arnold to approximate 4 300 to 100 million barrels. The allot- 
ment of this reserve to the unexhausted pools is shown in Fig. 
149. Estimates by other geologists differ in detail from Arnold's 
figures, but give the same order of magnitude for the oil definitely 
in sight. 1 Outside of the proven area, there is as yet no sub- 
stantial basis for estimating the probable underground supply 
of petroleum; considerable prospective territory is known and 
development work will doubtless bring other pools and fields into 
action. 

The output of Mexican petroleum is probably due for a slowing 
down in the period immediately ahead. If the rate of production 
of early 1921 is sustained, 1922 may see the end of the proven 
big fields of Mexico. On the other hand, special conditions may lead 
to a reduced rate of output earlier and a consequent spread of 
the remaining supply over a period of years. In either event, 
new productive pools, either in the Tampico-Tuxpam area or 
elsewhere in Mexico, can scarcely be developed with sufficient 
celerity to maintain an unbroken increase in that country's produc- 
tion of petroleum. 

Character of Mexican Petroleum. 2 — Most of the light crude 
produced in the Southern field is topped, with the production of 
about 12 per cent gasoline, 5 per cent kerosene, 81 per cent fuel oil, 
and 2 per cent loss. Some of this oil, however, is completely refined, 
yielding 15 per cent gasoline, 7 per cent kerosene, 28 per cent gas oil, 
25 per cent light lubricating distillate, 10 per cent heavy lubricating 
distillate, and 15 per cent gas and coke. 

The heavy crude of the Northern field contains so little gasoline 
that its flash point is low enough to permit its use as fuel oil without 

1 Huntley and Huntley (Mining and Metallurgy, Sept., 1921, p. 30) give the 
following est imate of the known reserves : 

Barrels 

Amatlan-Zacamixtle 50,000,000 

Cerro Azul-Toteco 150,000,000 

Tierra Blanca 50,000,000 

Panuco River pools (have not been limited 
and seem capable of considerable exten- 
sion). ? 
Total 250,000,000 

"These amounts disregard later recoveries from the same areas through 
stripping wells, as the factor used in the calculations was derived from the data 
in the Tepetate-Chinampa area, which excludes later recoveries." 

2 See G. A. Burrell, Oil & Gas Journal, January 30, 1920, p. 66. 



MEXICAN LAWS AFFECTING OIL DEVELOPMENT 



327 



refining. When topped, this crude yields 3.5 per cent gasoline, 4 
per cent kerosene, 90.5 per cent fuel oil, and 2 per cent loss; the fuel 
oil fraction so obtained, however, is so viscous that only about 2.5-3 
per cent gasoline is usually removed. Upon more complete refining, 
the heavy Mexican crude can be made to yield 3.5 per cent gasoline, 
4.5 per cent kerosene, 17 per cent gas oil, 5 per cent lubricating oil, 
65 per cent asphalt, and 5 per cent loss. 

Typical yields from Mexican crude are shown in Fig. 150. 



TOPPING PLANT COMPLETE REFINERY 



LIGHT CRUDE 



LIGHT CRUDE 



TOPPING PLANT 

HEAVY CRUDE 



GASOLINE 



•■.•.kerosene :;•: 
V:vV-:.:-:^it:lv/.'-'.-.'-: 




.GASOLINE- 



.-.KEROSENE' 

•.••v./.'-Tfc.-.v.v. 




-LiG.mT-L.y x BR.7 i 



oooooooooo. 
HEAVcYoLU.B.Ro 
o cDlSTILLATE o 

oooqojiooo 
o ooooooooo 




::^i^_ 



COMPLETE REFINERY 

HEAVY CRUDE 

iASOLINE 3;5^ 




-.\lu f'r if>Ti n o~jbj i^ 



jiMiBl 



Fig. 150. — Chart showing the average yields from Mexican petroleum; data 

from G. A. Burrell. 



Mexican Laws Affecting Oil Development. 1 — Wide publicity has 
been given the Mexican laws affecting oil development, and many 
conflicting statements are to be found on this subject. The mining- 
laws of 1884, 1892 and 1909, based on the Constitution of 1857, 
" recognized the principle that the exclusive ownership of the petro- 
leum deposits was vested in the owner of the land," 1 and provided 
for the acquisition of petroleum rights by foreign companies. 

In 1917 a new constitution was promulgated, based on the old 
land laws, which made a radical change in the petroleum legislation 

1 See The Petroleum Industry in Mexico, Commerce Reports, September 13, 
1920, p. 1224. 



328 MEXICO AS A SOURCE OF PETROLEUM 

of the Republic. As Article 27 of this constitution has met with 
active objection on the part of some of the foreign interests, a portion 
of the famous article is accordingly given below, following the 
translation published by the Latin-American Division of the U. S. 
Bureau of Foreign and Domestic Commerce: 

Translation of a Part of Article 27 of the Mexican 

Constitution 

The ownership of lands and waters within the limits of the national 
territory is vested originally in the nation, which has had and has the 
right to transmit title thereof to private persons, thereby constitut- 
ing private property. 

Private property shall not be expropriated except for cause of 
public utility and by means of indemnification. 

The nation shall have at all times the right to impose on private 
property such limitations as the public interest may demand, as well 
as the right to regulate the development of natural resources, which 
are susceptible of appropriation, in order to conserve them and 
equitably to distribute the public wealth. In the nation is vested 
direct ownership of all minerals, petroleum, and hydrocarbons — 
solid, liquid, or gaseous. 

Legal capacity to acquire ownership of lands and waters of the 
nation shall be governed by the following provisions: 

1. Only Mexicans by birth or naturalization and Mexican com- 
panies have the right to acquire ownership in lands, waters and their 
appurtenances, or to obtain concessions to develop mines, waters, or 
mineral fuels in the Republic of Mexico. The nation may grant 
the same right to foreigners, provided they agree before the depart- 
ment of foreign affairs to be considered Mexicans in respect to such 
property, and, accordingly, not to invoke the protection of their gov- 
ernments in respect to the same, under penalty in case of breach, of 
forfeiture to the nation of property so acquired. Within a zone of 
100 kilometers (62.14 miles) from the frontiers and of 50 kilometers 
(31.07) miles from the seacoast no foreigner shall under any con- 
ditions acquire direct ownership of lands and waters. 

Article 14 of the new constitution states: " No law shall be given 
retroactive effect to the prejudice of any person whatsoever." It is 
the contention of the Mexican Government that this constitutional 
provision will fully protect the companies already legitimately inter- 
ested in the petroleum industry in Mexico. 1 Many of the companies, 
however, have objected to the provision of the new constitution, and 
the matter has been brought under diplomatic consideration by the 
two countries. 

Taxation of Mexican Petroleum. 2 — Prior to May, 1917, the 

1 Commerce Reports, September 13, 1920, p. 26. 

2 For a scientific discussion of the taxation problem in respect to Mexican 
petroleum see V. R. Garfias, General Notes on the Production, Marine Trans- 



TAXATION OF MEXICAN PETROLEUM 



329 



exports of Mexican petroleum were taxed approximately 3.9 U. S. 
cents per barrel. From May, 1917, to July, 1921, a so-called stamp 
tax was levied upon outgoing oil by a decree established under 
President Carranza. The amount of this stamp tax was approxi- 
mately as follows: heavy crude, 5 cents per barrel; light crude, 
11 cents per barrel; .fuel oil, 9 cents per barrel; and crude gasoline, 
56 cents per barrel, or lj cents per gallon. In addition to the stamp 
tax which applied exclusively to petroleum there were minor taxes 
common to all exports, such as bar dues running from \ to J of a cent 
per barrel, and the Infalsificable, or paper redemption tax. These 
minor taxes for petroleum were small, compared with the stamp tax 
as given above. 

On July 1, 1921, a special tax supplanted the stamp tax, which 
had been in force from May 1, 1917 to June 30, 1921. This special 
tax differed from the superseded stamp tax in two main particulars: 
the basis of valuation was changed from that of the values of Mexican 
oils in Mexican harbors to the basis of the average values of similar 
products in the United States, the Mexican Treasury establishing 
monthly basic figures; and the special tax was based upon volume 
rather than weight. On June 7, 1921, a presidential decree insti- 
tuted an additional tax, an export tax on petroleum and its products, 
also to take effect upon July 1, 1921. 1 This tax was not ad valorem, 
but was fixed in amount. The total taxes applicable to exports of 
Mexican petroleum in July, 1921, are summarized in the following 
table : 

Table 123. — Total Mexican Taxes on Petroleum and its Products in 

Force in July, 1921 
Data from V. R. Garfias 
{In U. S. cents per barrel) 





Special Tax 


Infalsifi- 
cable 


Bar 
Dues 


Export Tax 


Total Taxes 


Light crude, 20° Be. 
Heavy crude, 12° Be. 
Fuel oil, 16° Be. 
Crude gasoline, 56° Be. 


13.000 
8.800 
11.558 
52.46 


1.300 

.880 

1.156 

5.246 


.740 
.782 
.760 
.597 


19 . 873 
12 . 322 
15.899 
74 . 723 


34.913 

22.784 

29 . 372 

133.026* 



In U. S. cents per gallon— 3.1673. 



portation and Taxation of Mexican Oils, Amer. Inst. Min. and Met. Eng., Pub. 
1054, Feb., 1921. Also Additional Notes on the Taxtion of Mexican Petroleum. 
(Advance copy supplied author in Aug., 1921, by courtesy of V. R. Garfias.) 
The data following aro based upon the papers of Garfias. 

1 The collection of the export tax was subsequently deferred until Dec. 1921. 



CHAPTER XXVI 

THE RELATION OF THE COAL INDUSTRY TO THE OIL 

INDUSTRY 

Coal and Oil Now Competitors.— Under present conditions coal, 
the dominant solid fuel, and fuel oil, the major component of crude 
petroleum, are competitors. This competition has attracted wide 
interest,, and in many quarters the belief has been expressed that 
serious inroads will be made upon the coal industry by virtue of 
the superior convenience and efficiency of oil fuel. As a matter of 
fact, however, petroleum cannot be expected to radically displace 
coal in industry and transportation, since a crude petroleum pro- 
duction of about 3 billion barrels per year would be necessary to drive 
coal from its present ascendancy. 

Oil Becoming More Specialized. — Substitution of fuel oil for coal 
marks merely an era of crude overproduction in respect to balanced 
demands. For many years the oil-fields of the United States have 
supplied crude petroleum in excess of the higher requirements of the 
market, with the result that the surplus in the form of fuel oil was 
forced to find an outlet in competition with coal. For the future, 
however, fuel oil will represent a narrowing percentage of the crude 
petroleum mined, since the more specialized uses— automotive 
power, lubrication, chemical by-products — are coming into growing 
importance and are registering their claims ahead of the demand for 
industrial fuel. Not only has the rate of crude production in this 
country long been lagging behind the growth of these specialized 
demands, but the latter are due for further increases in the future, 
while the crude output has virtually reached its maximum. This 
cross-purpose relation between supply and demand, though latent 
in 1921, has created a problem which is now generally recognized. 
The current answer to this problem is reflected in the present activi- 
ties in the direction of developing foreign oil-fields. The complete 
answer, however, goes much deeper and involves foreign develop- 
ments linked with intensive research, both material and economic, 
for the creation of new technology. The latter aspect of the matter 
is yet uncultivated, and offers an outstanding opportunity for 
advance. Coal represents one of the most potent directions from 
which oil can gain relief from the limitations of a waning resource. 

330 



A COAL REFINING INDUSTRY DEVELOPING 331 

Coal Becoming More Generalized. — At the same time that oil is 
gradually becoming restricted to a highly specialized field of service, 
and is seeking new sources of raw material to cover even this latitude, 
coal is undergoing an evolution almost as rapid in an opposite direc- 
tion. With no comparable resource limitation, coal is being forced 
by economic restrictions of a different order to seek new directions 
of application, with the correlative freeing of potential by-products 
which must find new outlets. Oil is seeking new sources of supply; 
coal is seeking new types of demand. 

These two trends in conjunction bid fair to bear important fruit in 
the future. Changes in oil will require supporting resources. Changes 
in coal will require new outlets. In view of this circumstance, it is 
important to analyze the coal situation in regard to its imminent 
changes, and to appraise the bearing that these changes are likely 
to have upon the oil situation. 

A Coal Refining Industry Developing. 1 — Just as the production of 
crude petroleum gave rise to a petroleum refining industry which has 
come to treat most of the crude petroleum produced, so likewise 
coal is attaching to itself a refining activity which will eventually 
involve a significant proportion of the crude coal mined, thus dis- 
placing raw coal with coal products. Progress toward a refining 
industry on the part of coal is generally conceded; the speed and 
character of the evolution only is open to question. The advance of 
petroleum in this direction was rapid, thanks to the insistent charac- 
ter of the demands created by the phenomenal growth of automotive 
transportation. The progress of coal in this direction has been slow, 
due to the large supply of raw material available, the presence of 
anthracite coal in the East, and the general neglect that has been 
accorded this whole matter. Coal refining, however, has already 
involved half of the coke industry and a small fraction of the manu- 
factured-gas industry; or, in terms of bituminous coal produced, 
around 8 per cent is now refined before utilization. 

There is much evidence to indicate that many conditions are 
shaping up — even outside the range of oil — which will accelerate 
changes in coal and bring important developments into view. These 
changes may be expected to take place first in the various sub- 
industries using raw coal, such as the coke industry, the gas industry, 
and the power-production industry. 

The Coke Industry as a Source of Oil. — The refining of coal to 
date has taken place largely within the confines of the metallurgical 
coke industry. Roughly one-sixth of the bituminous coal produced 

1 For further details, consult Gilbert and Pogue, America's Power Resources, 
New York, 1921, pp. 184-213. 



332 RELATION OF COAL INDUSTRY TO OIL INDUSTRY 

in this country is converted into coke and of this quantity approxi- 
mately one-half is treated with by-product recovery, that is to say, 
refined. In connection with this by-product treatment which involves 
about 40 million tons of coal, around 13 million barrels of benzol, 
light oils, and tar are annually produced. The potential yield of the 
entire coke industry, therefore 1 , once by-product practice has trans- 
gressed the whole field, is around 25 million barrels of oil products on 
the present basis of technology. 

But it must be remembered that such yields of oil products arise 
incidentally from a process in which the focus is upon the production 
of coke. There are probabilities of strikingly increased yields of 
oil when it becomes important to force this phase of the output and 
requisite^ new technology is developed to this end. 

The Gas Industry as a Source of Oil. — The gas industry, as now 
constituted, is an insignificant source of oil products, since this 
industry consumes only about 5 million tons of bituminous coal, 
slightly more than 1 per cent of the country's total consumption. 
There are potentialities of importance attached to the gas industry, 
however, in the possibility of its expansion to serve the fuel needs of 
communities, in the necessity of its growth to replace the waning 
supply of natural gas, and in connection with coal-mine generation 
of power which may develop in part along, lines of by-product gasi- 
fication. Such changes, moreover, may be forced rather rapidly 
by the rising prices of coal, the increasing dirtiness of cities lacking 
smokeless fuel, not to mention the growing needs for the oil by- 
products which will thus be made available. It is advisable, there- 
fore, to take a rough measure of what these potentialities hold forth 
in the way of augmenting the supply of oil. 

Municipal Fuel Plants a Coming Development. — It is technically 
feasible for the gas industry, which now supplies a small part of the 
community's requirements, to expand to the point of filling the total 
fuel needs of the community. Developments of this nature, in fact, 
are already afoot and are progressing more rapidly than is generally 
appreciated; the movement will be greatly facilitated upon a public 
and municipal awakening to the real possibilities of the matter. 

At present around 300 million tons of bituminous coal are used 
for domestic and industrial purposes. Assuming that one-third of 
this portion is utilized in populous centers, by-product gasification 
of this portion under present technology will yield around 25 million 
barrels of oil products. New technology holds the possibility of 
expanding this output to 50-100 million barrels. 

It is thus seen that a proper utilization of coal in our cities, which 
is bound to come, holds the possibility of contributing a highly 



CENTRALIZED POWER PLANTS 333 

significant quantity of crude oils for the use of the oil-refining 
industry. 

Effects of Waning Natural Gas Supply. — The United States at 
present is consuming around 600 billion cubic feet of natural gas, 
largely in the populous region of Indiana, Ohio, West Virginia, Penn- 
sylvania, and Western New York. A tremendous investment in 
capital and equipment has been provided to meet this function. 
The supply of natural gas is conspicuously on the wane, and if the 
investment in the natural gas industry is not to be lost, artificial 
gas must be developed to supplement the natural-gas supply. In 
point of fact, the replacement of natural gas by artificial gas is 
rapidly taking place. There is a conspicuous trend in the natural- 
gas industry for the upgrowth of coal gasification plants, and this 
tendency may be expected to increase in the future. This whole 
trend ties in with the possible upgrowth of municipal fuel plants, 
and in itself forms an important accelerating motive for the 
rapid development of by-product gasification of coal. It may be 
noted further that certain oil companies involved now in the pro- 
duction of natural gas will inevitably find themselves engaged more 
and more in the by-product utilization of coal, thus bridging the gap 
which now intervenes between coal and oil. 

Centralized Power Plants. — The burden that coal imposes upon 
the railroads of the country (over one-third of our freight is coal) 
and the inability of our industries to expand rapidly, or beyond certain 
limits, under this burden, are two factors that are forcing a steady 
drift toward central power plants near the mine mouth for the 
extraction of energy from coal. The initial tendency in this direc- 
tion of course derives its pattern from the hydroelectric development, 
and coal-field generation of electricity is already a reality. 

There are serious economic obstacles, however, to the centralized 
conversion of coal into electric power through the medium of steam, 
involved in the loss of the exhaust heat (made use of in distributive 
plants) and the failure to recover the by-products. These two objec- 
tions, tempered somewhat by the course of balance between the 
efficiency of the steam turbine and the large gas-engine installation, 
will force more and more consideration to by-product gasification of 
the coal as the intermediate step in the energy extraction. As this 
gasification step gains ground in engineering and economic practice, 
aided by the growing technology stimulated by the needs of the 
municipal fuel plant, the ultimate procedure of gas transmission as 
an alternative to electric transmission will come into being. Already 
in fact, some engineers are inclined to see under some conditions 
greater ultimate economy in this direction than in connection with 



334 RELATION OF COAL INDUSTRY TO OIL INDUSTRY 

the electric transmission of power. This whole matter links sig- 
nificantly with the needs of the natural gas situation, the two together 
forming a strong probability that eventually this country will see a 
more extensive network of gas transmission lines than is now char- 
acteristic of the territories served by natural gas. 

Centralized power plants, which may develop rather quickly in 
response to the needs of transportation, if for no other reason, may 
come to involve as much as 100 million tons of coal, giving the pos- 
sibility of an additional oil supply of some 25 million barrels under 
present practice, with an eventuality of 50-100 million barrels under 
new technology. 

While quantitative estimates of the kind noted above are sub- 
ject to many uncertainties it is apparent that there are three devel- 
opments under way within the coal situation, each of which holds 
some promise of contributing oil products to the maximum of 50-100 
million barrels, or a total of 150-300 million barrels. With all due 
qualifications in mind, it is apparent that such potentialities are 
sufficiently significant to be accorded serious attention. 

The Solution of the Peak-load Problem. — One of the most per- 
plexing problems in the way of cheap and efficient heat and power is 
the variable and seasonal character of demand, requiring excess 
equipment to care for the peak load. Such is notoriously the case in 
public utility plants and central power stations, and few subjects 
have received more attention from engineers than this matter. 
The possibilities of a technological process that will permit a variable 
proportion of oil and gas to be made from coal would be so great in 
the direction of solving the peak-loak problem as to give an acceler- 
ating impetus to the municipal fuel plant, the central power plant, 
and the whole matter of by-product gasification of coal. So great is 
the need for such an outcome that this development may be ulti- 
mately expected. A process otherwise economically sound, which 
has the added advantage of meeting the peak-load issue, would 
have value so outstandingly obvious as to require no additional 
emphasis. 

Oil from Coal Versus Oil from Shale. — An economic analysis of 
the coal industry, with reference to the changes that are coming, 
leads to the conclusion that oils from coal may rank in importance 
with shale oil. In many respects, coal deposits hold greater imme- 
diate possibilities than do the bulk of the shale deposits. 

Oil-shale is oil-forming material diffused through clay. Coal is 
oil-forming material diffused through carbon. The richest oil-shales 
occur in the West. Coal, on the other hand, is found in the heart 
of our populous industrial section; in fact, our populous industrial 



SOLID FUEL ULTIMATELY OBSOLETE 335 

section is such because of the presence of coal. Oil-shale has the 
possibility of yielding a barrel of oil and 20-30 pounds of ammonium 
sulphate per ton of shale, the residue being for the most part 
worthless. Coal has the possibility of yielding upwards of a barrel 
of oil and 20-30 pounds of ammonium sulphate per ton of raw 
material, the residue being fuel more valuable than the raw coal. 

Solid Fuel Ultimately Obsolete as a Dominant Form. — Fuel in 
liquid and gaseous form holds such advantages in the way of con- 
venience and efficiency that the use of solid fuel may be expected to 
be gradually relegated to second place. 1 The tendency will be to 
convert more and more of the raw coal produced into gas and oils 
along the lines laid down above. As the matter now stands, the 
utilization of raw coal is so ill-fitted to the needs of modern indus- 
trialism that the changes outlined are bound to come in growing 
degree. 

The crude petroleum situation requires supplementary resources. 
Foreign supplies are unable fully to meet this need. Attention is 
consequently already focusing upon domestic supplements. Oil 
products from coal represent a raw material source of great future 
importance. Developments coming in the coal industry hold the 
possibility of contributing highly significant quantities of oil products, 
and the coal resources of the country represent a source of oil that 
will yield a rich reward upon proper cultivation. 

1 For a discussion of form value see: C. G. Gilbert and J. E. Pogue., Form 
Value of Energy in Relation to Its Production, Transportation, and Application, 
Jour. Am. Soc. Mech. Eng., January, 1921, pp. 26-28. 



CHAPTER XXVII 
OIL-SHALE 

Before petroleum was discovered in the United States, a small 
quantity of oil was produced by the distillation of a volatile type of 
bituminous coal called cannel. From the crude oil so obtained, a 
product suitable for illumination was manufactured. Thus there 
was a coal-oil industry in this country antedating the petroleum 
industry. 

When flowing wells of petroleum were developed, the coal-refining 
industry found it impossible to compete with the natural product; 
and it was not long before the petroleum industry held undisputed 
sway in the production of liquid fuels. All that was left of the early 
commercial efforts to win oil from solid bituminous matter was the 
term coal-oil, which came to be erroneously applied to illuminating 
oils of petroleum origin, and is even so used to-day. The bounty of 
nature supplanted the ingenuity of man; the lavish flow of petroleum 
from the earth cut short the growth of coal-refining for over a half 
century. 

Of late years, again, the production of oils from bituminous min- 
erals has come to the fore, but this time the chief interest is focused 
upon bituminous shales, products which are related to the cannel 
coals but leaner in volatile, oil-forming components. The revival 
of the " rock-oil " industry is coming from a new and unexpected 
quarter. Work conducted by the U. S. Geological Survey in 1913 
called attention to extensive shale-oil deposits in Colorado, Utah, 
and Wyoming, where hundreds of square miles were found to be 
underlain by beds of bituminous shale, much of it capable of yielding 
upon distillation upwards of 1 barrel of oil to the ton. Since that 
time, the growing inadequacy of domestic petroleum to support 
the demands it has created has been gradually turning commercial 
attention not only to the Rocky Mountain deposits but to oil-yielding 
shales and coals in many other parts of the country, but the industrial 
efforts in respect to these leaner sources of oil supply are still feeling 
their way in an attempt to sound the possibilities in the new direc- 
tions. The whole movement has likewise been seized upon by pro- 

33G 



CHARACTER OF OIL-SHALES 337 

moting and stock-selling undertakings and through these avenues the 
matter has been widely advertised to the general public. 

Character of Oil-shales. — Oil-shales are dark-colored, sedimentary 
strata, consisting of a dense matrix of clay more or less saturated 
with organic materials resulting from the decomposition of plant 
and animal remains. Oil-shales vary considerably in the quantity 
of organic matter present, and with increasing proportions of the 
latter they grade into the cannel coals. Both the oil-shales and the 
cannel coals are distinguished by the presence of considerable hydro- 
gen, which combines with the carbon upon the application of heat 
and hence enables these products to yield hydrocarbon oils resembling 
petroleum when they are subjected to distillation. Nitrogen is also 
present in variable quantity, yielding a valuable commodity when 
extracted but interposing difficulties in its recovery. The cannel 
coals, in turn, through a diminution in hydrogen content, grade into 
the bituminous coals. Thus, in a general sense, oil-shales are related 
to the coal-series, and may be regarded as hydrogen-rich semi-coals 
so diluted with mineral matter as to be without usefulness in their 
raw state as fuel. 

Distribution of Oil-shales. — Lean bituminous shales are very 
common and widely distributed, but the richer varieties, like the 
cannel coals, are much more restricted in occurrence. Enormous 
tonnages of rich shale, in relatively thick beds underlying hundreds 
of square miles, occur in the Green River formation of northwestern 
Colorado, northeastern Utah, and southwestern Wyoming. These 
deposits have attracted considerable attention, and the richer and 
more accessible portions in Colorado and Utah have already been 
the scene of much activity in the private acquisition of territory 
and the establishment of experimental plants for the extraction of 
the oil. At Grand Valley and Debeque in Colorado, the efforts have 
been particularly active. 

In many other parts of the West, but especially in Nevada, Mon- 
tana, and California, deposits of oil-shales have been studied and 
experimental work done. At Elko, Nevada, a small-scale commercial 
shale-oil plant has been placed in operation, with a daily output of 
100 barrels of crude oil. 1 In Montana oil-shales have been found in 
association with phosphate deposits. 

Further east are extensive deposits of leaner oil-shales, underlying 
considerable portions of the states of Texas, Wisconsin, Indiana, 
Kentucky, Pennsylvania, and New York. In many localities in the 
East, the shales, while apparently leaner in oil-potentiality than the 

1 V. C. Alderson, The Oil-shale Industry in 1920, Combustion, March, 1921, 
p. 31. 



338 OIL-SHALE 

Western deposits, enjoy an intimate association with other mineral 
deposits, such as coal beds, phosphate deposits, cement materials, 
limestones, and others, thus affording possibilities of a coordinated 
extraction of values. 

Foreign Developments of Shale Oil. — The development of a 
domestic shale-oil industry has been stimulated by the commercial 
production of shale oil abroad, but the economic and technical 
peculiarities of the foreign activities have not apparently been fully 
apprehended in this country. The commercial success attained 
in Scotland has been generally drawn upon as a criterion of what may 
be accomplished in the United States. 

The Scottish oil-shales differ from those in the United States by 
containing, roughly speaking, about half the oil and twice the recov- 
erable nitrogen. In Scotland, therefore, the industry has been 
developed on the basis of nitrogen recovery, the oil being virtually 
a by-product. The Scottish technology has been strongly colored 
by this relation. The shale under Scotch practice is treated in 
vertical retorts, in the upper part of which the product is heated 
gently with the expulsion of the oil and in the lower part raised to 
much higher temperatures and treated with steam for the extraction 
of the nitrogen. The shale now retorted in Scotland yields about 25 
gallons of oil and 36 pounds of ammonium sulphate to the ton. 1 
The crude shale oil so obtained yields a somewhat similar range of 
products to those made from petroleum, but in different proportions 
and with a far higher percentage of loss. The percentage yield from 
one of the commercial plants in Scotland is shown in the table fol- 
lowing : 

Table 124. — Percentage Yields from Crude Shale Oil in a Commercial 

Plant in Scotland 

(Data from U. S. Bureau of Mines) 



Products 


Percentage Yield 


Naphtha (gasoline) 

Burning oil (kerosene) 

Gas and fuel oil 


9.9 

24.7 

24.4 

6.6 

9.5 

24.9 


Lubricating oil (low viscosity) 


Wax 


Loss (including still coke 2 per cent) 

Total 


100.0 





1 For a description of Scottish practice, see Gavin, Hill, and Perdew, Notes on 
the Oil-shale Industry, U. S. Bureau of Mines, 1919. 



AMERICAN DEVELOPMENT OF OIL SHALE 339 

It will be observed that the gasoline recovery is low, the yield 
of lubricants is small and of the less desirable type (non-viscous), and 
the losses notably high. 

The shale-oil industry in Scotland has achieved commercial suc- 
cess as a whole, but in its development the majority of the individual 
efforts met with financial failure, and only a few large, well-organized 
companies survived. At no time could the industry have been sup- 
ported by the oil-yield alone, nor under the conditions of oil-prices 
that prevailed in the United States. The Scottish experience, both 
technical and economic, may be applied to conditions in this country 
only with the utmost caution. 

Oil-shales are known in many other parts of the world, and some 
have received more or less commercial attention such as those in 
France and New Zealand, but nowhere outside of Scotland has a 
sustained industry developed. 

American Development of Oil-shale. — During the past five years 
an oil-shale industry has been developing in the United States, but 
thus far the activity is still in its formative period, and no substantial 
output of oil has come upon the market. The difficulties, both 
technical and economic, in the way of such an upgrowth, under the 
stimulus of dissociated and opportunistic efforts, are indeed imposing. 
Progress is gradually being made, largely as a result of trial and 
error, but the outcome as yet is by no means clear. The technology 
requisite to the retorting of the American shales is still in an experi- 
mental stage, with a large number of partly developed processes in 
the field; while the refining of the resulting crude shale oil is still 
largely an unknown quantity. Again, the whole matter of handling 
and marketing the products, in order to bring them into the channels 
of trade, remains to be worked out. 

On the other hand, the stimulus toward shale-oil production 
remains yet to be felt in its full intensity. 1 As soon as the supply 
of crude petroleum falls sufficiently short of requirements to bring a 
permanently higher price-level into the field, the economic oppor- 
tunities for the profitable production of oil from shales and coals 
will be considerably enlarged at the same time that commercial 
enterprise will be brought to a more rigorous development of the 
whole matter of supplemental oils. 

The Prospects Ahead. — From the point of view of those inter- 
ested, or becoming interested, in the commercial exploitation of oil- 
shales, there is no question but that deposits of this substance in the 
aggregate represent an untapped reserve of crude oil very many 

1 See Gilbert and Pogue, The Energy Resources of the United States, Bull. 
102, Vol. I, Smithsonian Institution, 1919, pp. 77-81. 



340 OIL-SHALE 

times greater than the available supply of petroleum. There is no 
doubt, also, of the immediate desirability of supplementing the 
developed sources of petroleum supply with oils from new directions. 
Thus far there has been no economic room for commercially exploiting 
the leaner oil resources of the country, for oil requirements could be 
met by the flow of petroleum from domestic wells and such easily 
accessible foreign deposits as those of Mexico. The opportunity 
for such developments lying ahead would seem to be predicated upon 
the further course of imported petroleums, since domestic petroleum 
has already fallen short. If foreign petroleums are quickly and 
cheaply made available to the United States, the opportunity for 
leaner resources will be deferred for another period. But foreign 
oil deposits cannot apparently be quickly tapped nor so developed 
as to yield a sustained supply of crude petroleum to this country at 
anything approaching the price-level prevailing in the past. The 
development of supplemental oils would therefore seem to be an 
early necessity. 

As to the precise course this development will follow, the answer 
is not so clear. Attention so far in this country has been largely 
confined to the possibilities of exploiting the Western shale deposits 
for the production of oil alone. The potentialities of the Central and 
Eastern shales in respect to the coordinate extraction of a range of 
values in addition to oil have been accorded subordinate attention, 
in spite too of the greater accessibility to markets enjoyed by 
these deposits. Likewise, the relationship of oil-shale to the cannel 
and other high-volatile coals (coals which have been termed gas-coals 
but which may come to be termed oil-coals) , has not been adequately 
emphasized; nor the correlation of this matter with the low-grade, 
high-volatile lignites. 

By-product Oils from Oil-shales and Oil-coals. — As the need for 
supplemental sources of oil becomes more insistent, industrial efforts 
will be redoubled and commercial results will be forthcoming. A 
growing output of crude oil will doubtless be realized from Western 
shale deposits, but by-product oils from Eastern shale-beds worked 
in conjunction with associated mineral values and from high-volatile 
coals and lignites subjected to refining may also be expected to come 
into growing, if not superior, prominence. In this event, the oil- 
shale industry as a whole will develop less along the lines of a dis- 
tinctive single-product activity such as the production of crude 
petroleum now is, and more in the direction of a complex chemical 
industry, on the one hand involving the extraction of coordinate 
values with oil as a joint-product or even a by-product, and on the 
other hand merging with the output of by-products from the refining 



BY-PRODUCT OILS FROM OIL-SHALES 341 

of the oil-coals such as lignites, cannels, and the high-volatile bitumi- 
nous coals. 

At best, however, the attainment of substantial results involves an 
important consideration of time. The requisite efforts can scarcely 
be expected to be put forth until the exigencies of economic pressure 
force the issue. While such a time may not be far distant, new indus- 
tries based upon new technology and a revolution in economic prac- 
tice cannot grow with celerity to the magnitude required without 
the lapse of years, if not decades. In the meantime the oil-shales 
and the oil-coals as well will come increasingly under requisition, 
with the odds in favor of those activities proceeding with due regard 
to both the physical and chemical aspects of the principle of multiple 
production. 



CHAPTER XXVIII 
FULL UTILIZATION OF PETROLEUM 

A vast amount of discussion has been devoted to the prodigal 
manner in which the natural resources of the United States have been 
developed, and petroleum has come in for no small share of attention 
in this respect. The small proportion of the original oil in the 
ground that ultimately performs a useful service to society has fre- 
quently been pointed to as a measure of the wastefulness that char- 
acterized the exploitation of this resource. Just what constitutes 
waste, however, is an uncertain matter, depending very much upon 
what is assumed to be the criterion against which performance may 
be measured. American petroleum has been brought into service 
at a tremendous cost of the oil itself, but a rapid industrial growth and 
a low capital expenditure have been gained in return. We have paid 
in oil for the speed with which the present volume of production has 
been attained and for the relatively low level of prices we have 
enjoyed during that attainment. The magnitude of the expendi- 
ture may turn out to be a false economy, and many are already inclined 
to designate it so, but American economic practice elected this pro- 
cedure and it is idle to speculate upon the desirability of results which 
cannot be changed. 

The time has come, however, when the methods of the past can 
no longer be followed; the oil remaining is not sufficiently bountiful 
to support its use for other purposes than as a source of material 
energy and chemical products. The accumulating pressure in this 
direction is already indicated by the rapidly growing capital require- 
ments of the petroleum industry. From now on, the tendency will be 
to use relatively less of the material itself, but to put greater effort 
in the service-value extracted from it. 

The limitations in resource size are accordingly beginning to 
dictate a fuller utilization of petroleum, while at the same time calling 
attention to the methods that are available for stretching the remain- 
ing volume of supply over a greater area of service. Under the new 
conditions, therefore, a criterion of efficiency is afforded and it 
becomes a matter of practical importance to measure the existing 
slack which may be taken up between supply and demand before a 
true shortage intervenes. 

The course of the oil supply depends upon the attainments in three 

342 



EFFICIENCY OF PRODUCTION 343 

directions: the foreign output that may be developed or directed 
into the domestic market; the supplemental sources of supply that 
may be brought into action; and the degree to which the overall 
efficiency of petroleum may be increased. Growing attention will 
of necessity be devoted to all three avenues, for the utmost that 
may be expected from the combined effort will scarcely prove too 
much in view of the requirements of the future. 

The outlook for foreign developments and supplemental sources 
of supply has been reviewed in previous chapters. The possibilities 
of improvement in respect to the production, transportation, refining, 
and utilization of petroleum may now be briefly appraised. 

Efficiency of Production. — In the search for oil-bearing territory 
in the United States, much of the work of exploration is done by the 
individual wildcatter, who frequently sinks his well with inadequate 
justification of finding oil. Lacking in organization and engineering 
practice, this method leads to a notable waste of labor and materials, 
besides opening up new territory with inadequate adjustment to 
transportation facilities or market demand. The science of geology 
has multiplied by a large factor me chance of striking oil, but much 
of the work of exploration is still conducted without geological advice. 
It has been calculated by the president of one of the large Mid- 
Continent producing companies, from extensive records of the com- 
pany, that 85 per cent of the wells located on the basis of careful 
geological surveys turned out to be productive, whereas only 5 per 
cent of the wells located at random were successful. Engineering 
exploration, now used almost exclusively in the search for foreign 
oil-pools, has a growing field of application in this country. 

The development of the oil-bearing territory, following its loca- 
tion, is subject to conditions that usually lead to extensive under- 
ground losses. Most of the oil-field operations in the United States 
are conducted by large numbers of rival interests. The individual- 
istic and highly competitive type of production thus induced is 
markedly different from that obtaining in most other mining opera- 
tions, and is responsible for a racing, unorganized extraction of the oil 
which leads to a tremendous sacrifice of values. This kind of activity 
is especially characteristic of new fields where boom conditions and 
checkerboard holdings are prevalent. Under such conditions, an 
excessive number of wells are drilled resulting in needless expenditures 
amounting to millions of dollars ; more or less uncoordinated drilling 
prevails, leading to uncontrolled underground movements of asso- 
ciated gas and water, with the loss of untold quantities of oil and 
natural gas which are thus put for all time beyond the reach of 
extraction; and finally, when the field is abandoned, over one-half 



344 FULL UTILIZATION OF PETROLEUM 

of the oil is left underground, still clinging to the pores of the oil 
sands. 

For many years the U. S. Bureau of Mines has studied the vital 
problem of unrecovered oil, and has recently expressed the opinion 
that the best evidence seems to indicate that only from 10 to 20 per 
cent of the oil underground is now being recovered. 1 It is the belief 
of the engineers of the Bureau of Mines, based upon what has been 
accomplished in some of the older fields by water-flooding and by the 
use of compressed air, that after a field has been brought to the 
point of abandonment, we should often be able by improved methods 
to recover half as much oil again as was originally produced. 

While the heaviest losses on the part of oil are sustained under- 
ground as the inevitable result of the destructive effects of competitive 
drilling of the field, losses due to inadequate methods of handling 
the product when it reaches the surface are far more sensational 
because open to observation. Surface losses are greatest in new 
fields and arise generally from the fact that production is forced in 
advance of preparations for handling and storing the output. As a 
result, some of the oil escapes any capture whatsoever, sinking into 
the earth or flowing down streams; great quantities of the lighter 
and more valuable components of the oil pass into the atmosphere 
through evaporation; while fires are responsible for another heavy 
toll of these valuable products. Even with adequate storage facilities, 
losses from evaporation are usually notable, and in many fields large 
quantities of residues and oil-water emulsions are made no use of 
whatsoever. Enormous volumes of natural gas are usually pro- 
duced along with the oil, and in the absence of an adequate demand 
for this product, much of the output is allowed to escape into the 
atmosphere. 

The Bureau of Mines has recently called attention to the magni- 
tude of the losses resulting from the evaporation of gasoline from crude 
petroleum while in storage. Careful investigations have disclosed 
that in many cases 20 per cent of the gasoline content of the crude oil 
is being lost by evaporation before it reaches the refinery, and that 
probably one-half of this loss may be economically saved by more 
careful attention to conditions of storage and handling. 

On the whole a low recovery factor characterizes the production of 
petroleum under the conditions that have prevailed in this country. 
Technical means are available for notably increasing the efficiency 
of extraction, but the handicap of competitive conditions working at 
cross purposes with the occurrence of oil still obtains. A funda- 

1 J. O. Lewis: Our Future Supplies of Petroleum Products; address before 
Independent Oil Men's Association Convention, Denver, September 29, 1920. 



EFFICIENCY IN TRANSPORTATION 345 

mental improvement in oil production may call for far-reaching 
changes in economic practice. 

Efficiency in Transportation. — Crude petroleum is transported 
in the main through an extensive system of pipe-lines supplemented 
by coastwise movements in tank-steamers. This distinctive mode of 
transportation is an outstanding feature of the petroleum industry 
and represents a high attainment in respect to efficiency. Some 
losses of oil, however, take place through evaporation and leakage, 
approximating 1 per cent in the gathering lines and 1 per cent in the 
trunk lines, according to investigations made by the U. S. Bureau of 
Mines in the Mid-Continent Field. Lack of transportation facilities 
in newly developed territory is a potent cause of losses by necessitating 
the accumulation of oil in the field in excess of adequate storage 
facilities. 

Petroleum products are shipped in bulk in tank-cars, and con- 
siderable evaporation losses take place in respect to the lighter 
products. In the most carefully built but non-insulated tank-car 
with dome cover and safety valve fitting tight and accurately, 
gasoline may evaporate to the extent of 5-6 per cent in a 
six-day trip in summer. An insulated tank-car has been de- 
veloped to take care of this condition; its wider use would 
lead to notable economies, for the small losses assume imposing 
proportions when multiplied by the billions of gallons of volatile 
products affected. 

Refinery Efficiency. — Petroleum refining, in general, falls short 
of the efficiency attained in many chemically controlled indus- 
tries. Much of the crude run to stills is merely skimmed of its lighter 
components, all else being left as a residual fuel oil. The failure to 
fully refine even the bulk of the crude petroleum brought into use 
entails a tremendous economic loss, which grows out of a lack of 
balance between the several major demands and the crude supply. 
On the physical side, the segregation of the products is not sharply 
defined, so that in many cases a portion of the more valuable products 
are marketed with the less valuable. Statistics gathered by the 
U. S. Bureau of Mines for several years indicate that about 4 per cent 
of the oil run to stills is unrecovered in the form of products. Part of 
this loss is inevitable, but a portion may be eliminated by more 
efficient installations. Much of the loss represents gasoline vapor, 
and it has been estimated by the Bureau of Mines that recovery in 
this respect to the extent of 2 per cent of the crude produced could be 
attained. 1 

1 E. W. Dean, Status of Refinery Practice with Regard to Gasoline Pro- 
duction, Society of Automotive Engineers, February 6, 1919. 



346 FULL UTILIZATION OF PETROLEUM 

Efficiency in the Utilization of Petroleum Products. — In the 
utilization of some of the products of petroleum there are losses 
arising from the inefficiency of the appliances involved which offer 
important fields for improvement. The most outstanding oppor- 
tunity for increased efficiency in utilization applies to gasoline, which 
must be more effectively employed to meet the mounting require- 
ments in this field. During the war the Bureau of Mines estimated 
that approximately 9 per cent of the gasoline consumed in the United 
States was wasted because of carelessness in its handling. A recent 
investigation of exhaust gases undertaken by the Bureau of Mines 
in connection with the Hudson River Vehicular Tunnel brought forth 
the significant fact that the combustible gas in the average automo- 
bile exhaust contains nearly 30 per cent of the heat of the original 
gasoline. 1 The great majority of passenger cars and trucks are 
operated on rich mixtures suitable for maximum power but very 
wasteful from the standpoint of gasoline economy. Careful car- 
buretor adjustment alone would result in a saving in the country's 
annual gasoline consumption of upwards of 15 per cent, or 600 
million gallons. 

To the loss arising from careless operation must be added the 
greater one resulting from the low fuel economy attained by the 
average automobile engine. In the words of a leading automotive 
engineer: " The ordinary engine running around the streets of New 
York has a thermal efficiency of from 5 to 10 per cent. ... I think 
that in five or ten years from now it will be common practice to secure 
in the neighborhood of 35 or 40 per cent thermal efficiency." 2 This 
conclusion, which is concurred in by many automotive engineers, 
indicates that a mileage of from 30 to 50 miles a gallon should be the 
ideal toward which both the public and the engine designer should 
look. 

In addition to the added mileage, and, in consequence, the greater 
service that may be won from gasoline, it is also possible to adapt 
the automotive engine and equipment to the use of less volatile fuel, 
which will permit the enlargement of the motor fuel supply on the 
part of the refiner. The requirements of automotive transportation 
are growing so rapidly that a supply of motor-fuel can be assured 
for future years only by giving the utmost attention, not only to 
economy of operation, but also to the more difficult problem of mod- 
ifying the engine, the character of the fuel, or both, so as to permit 

1 Fieldner, Straub, and Jones, Automobile Exhaust Gases and Vehicular- 
tunnel Ventilation, Jour. Soc. Aut. Eng., April, 1921, pp. 295-305. 

2 C. F. Kettering, More Efficient Utilization of Fuel, Society of Automotive 
Engineers, New York, February 6, 1919. 



EFFICIENCY IN UTILIZATION OF PETROLEUM 347 

the maximum enlargement in the fuel supply. This issue was 
first brought to the concerted attention of the automotive industry 
and the oil industry by the Oil Division of the Fuel Administration in 
1919, and since that time there has been progress toward cooperation 
between the producers of motor-fuel and the manufacturers of motors. 
The problem of coordinating engine and fuel is thought by many 
engineers to represent one of the most important issues now occupying 
the field of automotive transportation. The automotive engine in 
current use to-day is out of adjustment with the fuel supply and while 
marked adaptations upon the part of the engine are coming into 
evidence, the need is for a closer parallelism between the development 
of engine and fuel than has yet been attained. 

Fuel oil is not only the cheapest of the main petroleum products, 
but it is also the one used in greatest bulk. Because of low cost and 
the rapid expansion in its consumption, it is for the most part very 
inefficiently utilized. The Bureau of Mines, in a Handbook by 
James M. Wadsworth entitled " Efficiency in the Use of Oil Fuel," 
issued in October, 1918, estimated that out of 160 million barrels of 
fuel oil burned in the United States in 1917, at least 40 million barrels 
or one-fourth of the total " might have been saved by more intelligent 
operation of plant and proper firing." There is little reason to be- 
lieve that the efficiency of utilization has increased materially 
since this appraisal was made, and if oil is to be employed for fuel 
purposes, it should be used efficiently within this range of ap- 
plication. 

In addition to the losses occurring in the actual use of fuel oil, 
there is an even greater economic loss involved in the fact that over 
two-thirds of the fuel oil consumed is burned under boilers for steam 
raising, a method of utilization which extracts a minimum of value 
from the product, but which is nevertheless profitable to the con- 
sumer so long as the price of fuel oil is low. This sort of utilization 
is not generally regarded as a loss, but the fact remains that a 
product capable of highly specialized applications is now devoted 
to the crudest of uses. With the development and widespread use 
of the Diesel and semi-Diesel type of internal combustion engine 
in the place of the oil-fired steam engine, the service gained from 
fuel oil may be doubled or trebled. 

The outstanding feature of the fuel-oil situation of late is the 
rapid manner in which the requirements of transportation — automo- 
tive and marine — are encroaching upon the supply and competing 
with the uses which have thus far exclusively occupied the field. The 
rapid conversion of the navies and merchant marines of the world 
to an oil-fired basis, and the growth of gasoline requirements in 



348 FULL UTILIZATION OF PETROLEUM 

excess of the production of natural gasoline, are forcing a diversion 
of fuel oil from its industrial role to the rank of marine and motor 
fuel. With such rapidity has this diversion come about that accus- 
tomed channels of flow have suffered reduction and certain industries, 
such as the gas industry, have met with difficulty in obtaining their 
accustomed quotas. The elevation of fuel oil, and its light variety, 
gas oil, to higher economic levels, however, is a matter to be encour- 
aged. Although commercially a single product at the present time, 
fuel oil is fundamentally a mixture of wax, asphalt, lubricating oil 
and motor-fuel. Just as it is now an economic perversion to burn 
crude petroleum in its raw condition, so it will soon become uneconomic 
to utilize fuel oil in its present composite form. It is only a matter 
of time when fuel oil will be refined into its components and thus 
utilized, but that time should be hastened by appreciation of the 
true values contained in this product and concerted efforts toward 
winning these values therefrom. 

Of all the petroleum products, lubricants are fundamentally 
the most essential, for they support modern industrialism and their 
use cannot be dispensed with. In addition to the fact that millions 
of barrels of potential lubricating oils are burned annually in the 
United States in the form of fuel oil, the application of lubricating 
oils is in many instances far from scientific. In many installations it 
has been estimated that the needless losses arising from imperfect 
or faulty lubrication run from 10 to 50 per cent of the power con- 
sumed. If we visualize for a moment the vast quantities of coal and 
hydroelectric energy brought into service in the United States, and 
bear in mind that a large part is devoted to the overcoming of friction, 
we gain an adequate idea of the importance of lubricants as conservers 
of energy. 

A lubricating problem of no small importance has developed of 
recent years as a result of the change in the character of motor-fuel 
induced by the mounting demands for this product. Because of 
the lessened volatility of fuel on the one hand, and the slow adap- 
tation of the engine to this circumstance on the other, the life of 
lubricants in the automotive engine has been lessened through 
crank-case dilution. This matter is an example of a faulty develop- 
ment which could have been prevented in advance more easily than 
it may be corrected in the present. 

The Natural-gas Analogy. — It is desirable to review the natural- 
gas situation in the United States since this product illustrates a 
resource closely associated with petroleum, which has been brought 
to the verge of exhaustion by rapid and hasty methods of exploitation 
and whose future would seem to be largely dependent upon the 



THE NATURAL GAS ANALOGY 349 

extent to which constructive and enlightened conservation measures 
are brought to bear upon the prolongation of its life. 

The production of natural gas reached its peak in 1917 with a 
marketed output of nearly 800 billion cubic feet, and since that time 
the production has been rapidly declining, with an estimated output 
in 1920 of less than 650 billion cubic feet. It is a serious matter 
when the production of an essential commodity serving directly 
over one-tenth of our population has entered upon a waning course. 

In 1917-1918 the Oil Division of the Fuel Administration was 
faced with the necessity of dealing with the critical natural-gas con- 
ditions that were already displaying serious results. On the basis 
of extensive engineering data it was estimated that the common 
methods of producing, transporting, and using natural gas have 
resulted in losing more gas than has ever been brought into useful 
service. A report made by S. S. Wyer to the Fuel Administration 
indicated that the loss of natural gas to-day is greater than the quan- 
tity of gas actually utilized. Man, with all his skill, has never been 
able, to make a commercial gas equal in quality to the natural gas 
now so lavishly and carelessly used. Natural gas has previously 
been so abundant in this country, and so little value has been placed 
upon its use, that the product has been carelessly and shamefully 
misused. Wyer, whose work on natural-gas conservation, both in 
the Fuel Administration and subsequently, turned so much light on 
what may be accomplished by effective conservation measures, has 
recently stated: " . . " . the rate of decline of the (natural-gas) 
industry's field resources has been so rapid, and the provision for 
taking care of that depletion has been so inadequate, that, based on 
personal investigation of over one-half of the natural-gas industry 
in the United States, I am sure that at last three-fourths of the 
natural gas companies in the United States will be insolvent inside 
of three years if . . . the practice of selling natural gas at a figure 
so low as not to place any incentive on saving the gas, but actually 
putting a premium on waste, because the gas is cheaper than any 
efficient appliance that can be purchased or used to save it " is not 
corrected. 

It would carry the discussion too far into detail to describe fully 
the various losses that take place from the well to the consumer 
under present conditions. The over-drilling of gas pools, the losses 
in transmission due to leaks arising from electrolysis and other 
causes, the dominant application of this choice fuel to low industrial 
uses, the wastefulness of the majority of appliances used in burning 
natural gas, the use of this fuel in the manufacture of carbon black 
in unsuitable localities, are all well known. Apart from the under- 



350 FILL UTILIZATION OF PETROLEUM 

ground losses and the needless employment of capital and labor in 
surplus drilling, the average losses for all natural-gas companies in 
the United Stales between the well and the consumer's meter are esti- 
mated, on good authority, to be from 30 to 35 per cent of the gas 
produced. 1 Then, of the portion passing the consumer's meter, 80 
per cent performs no useful service owing to inadequate appliances 
and improper application. 

The measures rapidly being adopted looking to fuller and more 
efficient utilization of our dwindling supplies of natural gas afford an 
interesting object lesson on the change that comes when the output 
of an essential commodity runs definitely short of requirements. 

The Situation in Perspective. — The losses taking place in the 
exploitation of petroleum have called down many critical statements 
as to their magnitude and the ultimate consequences. For the sake 
of the perspective afforded by the outside view these appraisals may 
not be without value. 

Sidney Brooks, an English journalist, writing in " The Nineteenth 
Century/' reflects the consensus of opinion abroad when he remarks: 

America, as one would expect, has been the classic home of all 
that is hasty, negligent, and well-nigh criminal in the misuse of oil 
as of every other form of natural wealth; and America in conse- 
quence finds herself to-day consuming more oil than she produces 
and faced with the prospect that her deposits may in thirty years 
be nearing exhaustion. Huge oil-tank and gasometer as she is, it is 
doubtful whether in the past sixty years America has not lost for all 
time more petroleum and more natural gas than she has won from 
the earth. 

The Director of the U. S. Bureau of Mines 2 has said : 

What effort have we made to conserve this supply and to 
utilize it to its greatest advantage? We have made little effort until 
very recently to do these things. We have been wasteful, careless, 
and recklessly ignorant. We have abandoned oil-fields while a large 
part of the oil was still in the ground. We have allowed tremendous 
quantities of gas to waste in the air. We have let water into the oil 
sands, ruining areas that should have produced hundreds of thou- 
sands of barrels of oil. We lacked the knowledge to properly produce 
one needed product without overproducing products for which we 
have little need. We have used the most valuable parts of the oil 
for purposes to which the cheapest should have been devoted. For 
many years the gasoline fractions were practically a waste product 
during our quest for kerosene; with the development of the internal- 

1 Address of S. S. Wyer, Conference on Natural Gas Conservation, Washing- 
ton, January 15, 1920. 

2 Yearbook of the U. S. Bureau of Mines, 191G, Washington, 1917, p. 117. 



EFFICIENCY A NECESSITY 351 

combustion engine the kerosene is now almost a waste product in our 
strenuous efforts to increase the yield of lighter distillates. 

The Smithsonian Institution 1 reports: 

Under present practice, from 90 to 30 per cent of the oil is 
left underground. Then, of the quantity produced, an appreciable 
percentage is lost by fire, and a significant portion dissipated by 
seepage and evaporation due to inadequate storage facilities. On 
the average, therefore, it is safe to say that less than 25 per cent of the 
petroleum underground reaches the pipe-line. If we subtract from 
this proportion the losses involved in improper and wasteful methods 
of utilization, the recovery factor becomes perhaps as low as 10 per 
cent. , . . 

In 1919 an English writer 2 attracted widespread attention with 
these startling words : 

America has recklessly and in sixty years run through a legacy, 
that, properly conserved, should have lasted her for at least a cen- 
tury and a half. . . . Just when Americans have become accus- 
tomed to use twenty times as much oil per head as is used in Great 
Britain; just when invention has indefinitely expanded the need for 
oil in industry; just when it has grown to be as common and as true 
a saying that " oil is King " as it was twenty years ago that steel 
was king; just when the point has been reached where oil controls 
money instead of money controlling oil — the United States finds her 
chief source of domestic supply beginning to dry up and a time 
approaching when instead of ruling the oil market of the world she 
will have to compete with other countries for her share of the crude 
product. . . . 

America is running through her stores of domestic oil and is 
obliged to look abroad for future reserves. . . . 

Efficiency a Necessity. — For the oil industry there is a single 
cloud upon the horizon — raw material. A problem is coming to be 
recognized which, in the earlier days of the industry, was too far 
removed to appeal to the practical man. It has been reiterated until 
everyone is tired of hearing it that the demand for oil is exceeding 
the supply. This country is growing with startling rapidity into 
dependence upon foreign sources of petroleum supply. What does 
that simple fact mean? It means that we must pay growing atten- 
tion to all methods, engineering and economic, that will conduce to the 
fuller utilization of the raw material that we have. How much 
we have, no one can say precisely; that the supply is unlimited, no 
one would now have the audacity to assert; that the supply is inad- 

1 Petroleum : A Resource Interpretation. 

2 E. Mackay Edgar in Sperlin's Journal, September, 1919. 



352 FULL UTILIZATION OF PETROLEUM 

equate to our needs is a fact requiring no further proof. We must 
extract a greater percentage from our underground reservoirs; 
we must more carefully guard the oil extracted from evaporation, 
contamination, and fire; we must refine that oil more carefully, 
turning more of it into products of high economic rank; we must 
have regard for the appliances utilizing the products of that oil, to 
the end that the full service may be drawn from the commodities 
that are turned over to consumption. More than this, we must more 
carefully adapt the rate at which we produce and refine to the highest 
requirements of the market; we must coordinate and integrate 
our activities that the raw material which lies at the foundation of 
the whole activity may be increased in productive capacity. We 
have passed the time when we can continue to grow through incre- 
ments of volume alone; we must now take advantage of the multi- 
plying power gained through the balanced employment of the creative 
agencies of production. We must make what we have go further 
and do more; we must become efficient, not by the measure of others 
less efficient, but by the measure of those in the lead. The oil industry 
has assumed an obligation for supplying the vital needs of modern 
civilization; its best efforts will be required to live up to that respon- 
sibility. 



CHAPTER XXIX 

THE FUNCTION OF STATISTICS IN THE PETROLEUM 

INDUSTRY 1 

Standing of Statistics now Inadequate. — Mathematics has been 
defined as the science of rigorous thinking. Statistics may be 
defined as a branch of mathematics which facilitates the applica- 
tion of rigorous thinking to the problems of action. In the realm of 
business and industry, the science of statistics affords, or should 
afford, the means for measuring the use of energy, materials, and 
capital to the end that they may be most productively employed. 
As a practical tool, statistics has been inadequately utilized and the 
field stands in need of suitable recognition and proper rank amongst 
the agencies of production. 

The Threefold Character of Statistics. — The science of statistics, 
as thus far developed, is divisible into three fundamental, though 
somewhat overlapping, divisions, which maybe termed (1) account- 
ing, or record statistics, (2) engineering, or operating statistics, and 
(3) planning, or economic statistics. Accounting statistics has been 
highly developed and may be regarded as in its maturity ; engineering 
statistics has been accorded moderate application and is in its youth; 
economic statistics has only recently come into action and its prac- 
tical application is still in its infancy. In business and industry, the 
utilization of statistics has suffered from an unbalanced growth, 
because of the comparative neglect of two important functions. 

Accounting Statistics. — Every business organization as a matter 
of course maintains accounts, or accounting statistics, which repre- 
sent a record of what has happened for purposes of meeting financial 
and legal requirements. Such a record constitutes a mathematical 
account of all transactions in goods and dollars, expressed in a form 
specified by the requirements of law and corporate finance. Account- 
ing statistics are highly developed and rigorously standardized in 
business practice. Their character is familiar to all. They cul- 
minate in the conventional balance sheet, and they form the basis 
of taxation, loans, credit extensions, and other financial operations 
of business enterprise. Accounting statistics are universally employed 

1 Adapted from an address by the author before the American Petroleum 
Institute. 

353 



354 FUNCTION OF STATISTICS IN PETROLEUM INDUSTRY 

because of their obvious necessity. The preparation of accounting 
statistics, however, is a static function. This activity is primarily 
concerned with the measurement of tangible assets, but pays little 
attention to how those assets are being used. 

Engineering Statistics. — Because of the necessary establishment 
of accounting as an integral part of business organization, only 
secondary consideration is customarily given to the provision of 
data in a form adapted to improving the operating efficiency of the 
undertaking. For purposes of management, accounting data are, 
in consequence, usually used, although such material is designed for a 
different purpose and is not suited to this end. The widespread 
employment of accounting statistics for managerial purposes is a 
source of weakness in many organizations, leading to loss and inef- 
ficiency, and sometimes to failure. 

Accounting statistics, therefore, need to be supplemented by 
engineering, or operating, statistics which will afford a measure of 
actual performance and suggest means for improving that perform- 
ance; in short, for increasing the productivity of the enterprise. 
The function of engineering statistics is to provide a picture of what 
is happening in such a form that : 

(a) The unproductive portion of the equipment may be rec- 

ognized. 

(b) The efficiency of the productive portion of the equipment 

may be measured. 

(c) The causes of unproductivity and inefficiency may be 

made apparent to the end that they may be corrected. 

Engineering statistics, moreover, in addition to providing a guide 
for management should be made to furnish superintendents, foremen, 
and workmen records of their own individual operations in order to 
arouse their creative and emulative instincts and increase their 
productivity. It has been amply demonstrated by a number of 
industrial engineers that by keeping individual records of produc- 
tion and systematically attempting to remove obstacles which pre- 
vent complete accomplishment, a notable degree of cooperation is 
attained and unsuspected possibilities developed in the working 
staff. 

Fig. 1, on page 2, shows the economic structure of the oil industry 
and suggests the headings which engineering statistics should cover. 

H. L. Gantt has strikingly described the difference between engi- 
neering statistics and accounting statistics as comparable to the dif- 
erence between a moving picture and a photograph. 



ECONOMIC STATISTICS 355 

Economic Statistics. — In the early growth of business and indus- 
trial activities, with bountiful resources and expanding markets, 
economic statistics have systematically been used even in less degree 
than engineering statistics, although they have always been taken 
into account in a qualitative and imperfect manner. Economic 
statistics are needed for planning accurately and effectively, for 
keeping efforts on the right track, and as a support to engineering 
statistics in operating. 

Success in management depends in large degree upon the extent 
to which accumulated experience can be rendered available for use, 
and upon the exactitude with which conditions ahead can be appraised. 
The primary function of economic statistics is to gather the experience 
of the organization, of the industry of which the organization is a 
part, and of business and industry in general, and to render this 
composite experience available for use in the problems of manage- 
ment and planning. A further purpose of economic statistics is to 
provide a comparison of actual performance with outside standards 
of accomplishment, as well as to measure the results of any given 
course of action with a view to determining its efficacy and justifying 
its continuance or termination. For the sources of economic sta- 
tistics, the whole business and industrial field must be scanned — 
Government activities, technical and trade associations, trade publi- 
cations, research bureaus, and the vast range of financial and economic 
literature. 

Under the complex conditions of modern industrial activity, 
efficiency in management is predicated more and more upon a 
coordinated and balanced development of accounting, engineering 
and economic statistics; and the development and furtherance of 
both engineering and economic statistics are matters of urgent impor- 
tance, involving investigation, research, and engineering practice 
of a rigorous and exacting character. The field of engineering and 
economic statistics is underdeveloped, and much able effort should 
go toward perfecting and extending its applicability and insuring 
its adequate integration with the more accustomed means of mana- 
gerial control. 

Fig. 151 is a chart of the economic structure of business and indus- 
trial activity, and suggests the topics to be covered by economic 
statistics in the field of general business and industrial conditions. 

Statistical Technique. — The technique whereby statistics, in their 
broad meaning, may be brought to adequacy as a working tool is by 
no means perfected, and if statistics are to meet the responsibility 
placed upon them by modern industrial requirements, considerable 
attention must be accorded the means for gathering, analyzing, inter- 



356 FUNCTION OF STATISTICS IN PETROLEUM INDUSTRY 

preting and presenting the facts upon which the success of any enter- 
prise is coming more and more to depend. There is need for mutual 
understanding and constructive cooperation between the various 
agencies concerned with this activity, to the end that there may be a 



PRICES 



FOREIGN TRADE 



SPECULATION 




BUYING POWER 



TRANSPORTATION 



MANUFACTURE 



TRANSPORTATION! 



RAW MATERIAL 




LABOR- 
MANAGEMENT 



MONEY- 
CREDIT 



Fig. 151. — Chart of the industrial structure showing the sub-divisions of the field 

for economic statistics. 



free interchange of ideas and methods, and that an effective tech- 
nique may be built up and established. 

Gathering of Statistics. — Accounting and engineering statistics 
are inherently a responsibility of the industrial unit itself, but eco- 
nomic statistics must be drawn not only from the operating organiza- 
tion, but quite extensively from external sources, especially Govern- 
ment activities, industrial and trade associations, the trade press 



ANALYZING STATISTICS 357 

and a wide range of financial and economic sources. In respect to 
economic statistics, the oil industry has available a more complete 
and accurate record of the flow of its raw materials and manufactured 
products than most other industries enjoy. The economic statistics 
of crude petroleum furnished monthly by the U. S. Geological Sur- 
vey and the economic statistics of refined products supplied each 
month by the U. S. Bureau of Mines are valuable material. A draw- 
back to these figures, however, is the delay intervening before they 
are made available to the industry, and every effort should be bent 
toward decreasing this interval in order that their usefulness may be 
enhanced. The American Petroleum Institute is making creditable 
efforts in this direction. In the gathering of statistics, the trade press 
has somewhat confined its efforts to well data, field production and 
price quotations. In all three respects there is some room for im- 
provement in accuracy and continuity. 

Analyzing Statistics. — In the analysis of statistics no standardized 
technique is available. A great gain in convenience and effectiveness 
may be made by devising and using appropriate analysis schedules 
which will automatically make the primary analysis. The use of 
index numbers has been largely neglected and this convenient device 
may be effectively employed in many directions in the oil industiy. 
Various other mathematical devices and expedients for weighting, 
averaging, combining, etc., may be employed to advantage in specific 
instances. The technique in these various directions suggested by 
the interesting work now being conducted by the Harvard University 
Committee on Economic Research and published in the Monthly 
Review of Economic Statistics is of value in this connection. 

For purposes of statistical analysis, graphic methods are of out- 
standing importance. Natural-scale graphs are suitable for size 
comparisons, whereas the use of semi-logarithmic charts gives remark- 
able results where trend comparisons are important. The use of 
graphic methods for purposes of analysis offers a fertile field for 
further research and development. 

Interpretation of Statistics. — After statistics are gathered and 
analyzed, the most difficult task still remains — their interpretation. 
The proper interpretation of statistical results, it goes without saying, 
requires the highest type of ability. To draw therefrom full sig- 
nificance and accurate meaning demands not only acquaintanceship 
with statistical technique, but a knowledge of engineering, economics, 
and technology in the field to which the figures pertain. Accurate 
interpretations, moreover, demand the research point of view, 
together with practical contact with the problems dealt with. 
Effective work in the gathering and analysis of figures is of no avail 



358 FUNCTION OF STATISTICS IN PETROLEUM INDUSTRY 

if they are not correctly interpreted and if their full meaning is 
not deduced. 

Presentation of Statistics. — The final step in statistical work is the 
presentation of the results. Nothing of practical value has been 
accomplished until the results are brought into action. There has 
been failure in much statistical work to pay proper attention to this 
phase of the activity. The presentation of statistics is not merely 
a science — it is an art as well. 

In the exposition of statistical results, it is notable that rather 
simple and obvious expedients for gaining clarity and effectiveness are 
usually overlooked. For example, statistical tables gain in simplic- 
ity and in the readiness with which they may be grasped, if the figures 
are expressed in large units and fractions thereof instead of in 
smaller units of the barrel and gallon. For the presentation of sta- 
tistics, the use of graphical devices is highly advantageous and great 
advances are here possible over the common practices in this respect. 
Graphics serve not only to impress the facts upon the mind, but to 
show their interrelationships, thus affording ready comprehension. 
Numerical statistics are like the description of a picture; graphically 
expressed statistics are the picture itself. Graphics afford not only 
ease of comprehension, but in addition provide that most important 
essential — perspective. Space prevents extended discussion of the 
technique of graphic presentation, but much can be gained from 
" Graphic Methods for Presenting Facts," by Brinton and " How to 
Make and Use Graphic Charts," by Haskell, while the pages of the 
present book may prove suggestive. Effective results may fre- 
quently be attained by combining tabular and graphic presen- 
tations. 

Graphic charts are applicable not only to purposes of manage- 
ment, but are also especially valuable for the operating staff and the 
individual workman. The employee should also be the beneficiary 
of visual methods. To visualize data and information is to add to 
human intelligence and effectiveness. 

Research. — Statistical research, or, using the preferable term, 
economic research is growing in importance as a method for inves- 
tigating operating and economic conditions for purposes of con- 
tributing to productivity and accuracy of planning. Research — 
the making of careful measurements and the drawing of appropriate 
deductions therefrom — is the vital part of statistical work, and 
without the scientific point of view the handling of statistics becomes 
a mechanical and routine matter, and the results are inadequate and 
likely to be misleading. 

The importance of statistical, or economic, research was recog- 



RESEARCH IN THE PETROLEUM INDUSTRY 359 

nized earlier in finance than in industry, as evidenced by strong sta- 
tistical and research bureaus in banking and investment establish- 
ments. It goes without saying that the whole field of insurance is 
grounded upon the results of research in vital statistics — to such a 
degree, indeed, that this business has itself the distinction of being 
virtually an exact science. It is to be noted that statistical research 
has been extensively developed by advertising agencies and trade 
publications. Now the up-to-date advertiser makes extensive 
and close use of research methods in appraising the markets which 
the advertising is designed to reach. 

During the war, statistical (economic) research became exten- 
sively necessary as the basis for the coordination of the country's 
production and the allocation of its products. At the present time, 
economic research is developing rapidly in the larger and more 
complicated industries, especially the packing industry, the steel 
industry, the rubber industry, the automotive industry and the oil 
industry, where this activity is found under various names such 
as " statistical research," " commercial research," " trade promotion 
and research," " market control," " engineering statistics," " eco- 
nomic research," and the like. 

Research in the Petroleum Industry. — The opportunity for sta- 
tistical, or economic, research in the oil industry is especially out- 
standing by virtue of the rapid changes that are taking place in this 
activity and the important and extensive range of service rendered 
by the products of petroleum. Because of the rapidity with which the 
raw material base is changing in geographical position, chemical char- 
acter, and volume, and because of the acceleration of demand over 
supply as working through a multiple production type of fabrication, 
the economic balance between the various petroleum products is 
altering with notable rapidity. The detection and measurement of 
these conditions, and the coordination of the tendencies with market 
requirements on the one hand, and operating conditions on the other, 
afford wide scope for careful inquiry and effective results. Among 
the subjects that may be covered in such work are price studies, 
appraisals of supply and demand, measurement of marketing 
territory and requirements, analyses of consuming activities such as 
the automotive industry, statistical measurements of the effects of 
changing technology, and so on, not to mention more specific analyses 
making use of both accounting and engineering statistics in connec- 
tion with operating conditions. 

Conclusion. — In short, adequate statistics represent the means 
for attaining engineering control of operations, to the gain of increased 
productivity and more effective planning. The development and 



360 FUNCTION OF STATISTICS IN PETROLEUM INDUSTRY 

balanced employment of accounting, engineering- and economic 
statistics, directed from the research point of view, are essential to 
this end. As a concrete example of operating and planning on the 
basis of the findings of statistics, there may be mentioned the instance 
of the railroad executive who appreciating that earnings are made 
by the ton mile and expenses incurred by the train mile, determined 
every action by the extent to which it contributed to the increase of 
ton miles and to the decrease of train miles. 



INDEX 



Accounting statistics, 353-354 

Acreage, controlled by natural-gas producers, 197 

oil-bearing, 34, 35, 36 
Alcohol, 282-283, 295, 298 

See blended motor-fuels, composite motor-fuels, motor-fuel problem 
Alderson, V. C, 337 

American Gas Association, 142, 160, 301, 307 

American Institute of Mining and Metallurgical Engineers, 12, 20, 71, 164, 329 
American Mining Congress, 32 

American Petroleum Institute, 7, 27, 52, 65, 73, 126, 158, 282, 293, 353, 357 
American Society of Mechanical Engineers, 335 
America's Power Resources, 18, 311, 331 
Aniline, 298 

Annals of the American Academy, 23 
Appalachian field, 15, 21, 22 
Appliances, changes in, 295-298 

relation to fuel, 296-299 
Arnold, Ralph, 18, 29, 34, 46, 47, 325 
Asphalt, 187, 188 

Asphalt-base crudes, 12-13, 77-78, 164-165, 169, 291 
Assets of American oil industry, 7 
Automotive Fuel Club, 112, 113 
Automotive Industries, 126, 263, 287 
Automotive transportation, effect upon petroleum industry, 262-271 

future demands of, 264-265, 267, 286-287 

gasoline consumption of, 119-129, 286 

growth of, 49 ; 50, 262-267, 287 

motor-fuel problem, 270, 279-282, 285-289 

peak-load problem in, 270-271 

relation to fuel oil, 159, 163, 269 

relation to gasoline, 112-117, 127-129, 267-269, 286-287 

relation to kerosene, 132-135, 140-141, 269 

relation to lubricating oils, 175-182, 269-270 

Ball, Max W., 32 
Barrel-day method of valuation, 5 
Bates and Lasky, 20, 28, 30, 40, 41, 42, 237, 241, 242 
Beal, Carl, 33, 47 
Benzol, 280-282, 294-295, 298 
Blended motor-fuels, 279-284 

Bituminous coal, as a source of oils, 280-282, 330-335 

361 



362 INDEX 

Brinton, W. C, 358 

Brooks, Sidney, 350 

Bunker oil, 157 

Bureau of Corporations, 178 

Bureau of Oil Conservation, see U. S. Fuel Administration 

Bureau of Railway Economics, 17S 

Burrcll, (J. A., 326, 327 

By-products of petroleum, 183-194 

asphalt, 187-188 

chart of, 194 

future of, 194 

greases, 192-193 

medicinal oils, 193 

miscellaneous, 193-194 

petrolatum, 191-192 

wax, 184-187 

California, fuel oil in, 152-154 
California field, 17, 21, 22 

production cost in, 30-31 

refining costs in, 87 

relative importance of, 58, 59 
California State Council of Defence, 153, 154 
Capital stock of oil industry, 8 
Capitalization of oil industry, 7-9 
Carbon black, 206-207 

Carburetted water-gas, 300-301, 304, 305, 308, 310 
Casinghead gasoline, 111, 207-211, 276 
Centralized power plants, 333-334 
Chemical character of oil, 12 
City-gas, 300-311, 332-333 

changes in manufacture of, 308-311 

cost of, 307, 308 

development of, 301-303 

future of, 309-311, 332-333 

problem of, 300-311 

relation to gas oil, 303-311 

types of, 300-301 
City-gas industry, productive of oil, 332-333 
Coal, equivalent of fuel oil, 162 

relative efficiency of, 152 
Coal gas, 301 

Coal industry, relation to petroleum industry, 330-335 
Coal oil, 130, 280, 331-335, 336, 340 
Coal refining, 331, 333, 336 
Coal products, 281-282, 331, 333 
Coke industry, 331-332 
Coke-oven gas, 301 
Coke, petroleum, 187, 189-191 
Combustion, 337 
Commerce Reports, 327, 328 



INDEX 363 



Commercial control of oil deposits, 312-319 
Common carriers, 67 
Composite motor-fuels, 279-284, 294-295 
Conservation, 205-206, 342-352 
Consumption factor, for gasoline, 121, 123 

for motor-oil. 180 
Consumption of fuel oil, 149-163 

of gasoline, 117-129, 285-288 

of kerosene, 135-141 

of lubricating oils, 171-182 

of natural gas, 196-198 

of petroleum, 58, 61, 255, 261 
Coordination of engine and fuel, 298-299, 346-348 
Cost, of cracking, 273 

of drilling, 28, 241, 242 

of labor, 89 

of producing oil, 29-31 

of refining, 85, 87, 88 

of transporting oil, 67-68, 72 
Cracking, cost of, 273 

development of, 146 

economic significance of, 272-278 

future of, 277-278, 293 

nature of, 272, 292-293 

raw material used for, 273-274 

relation to fuel oil, 146, 163, 273-274 

relation to gas oil, 273-274, 303-304 

relation to gasoline, 274-278, 293 

relation to kerosene, 139-141 

typical yield from, 83, 273 
Crank-case dilution, 146, 181, 270, 348 
Crude petroleum, exports of, 230 

field development of, 27-47 

in foreign countries, 22-26, 294, 312-319, 320-329 

occurrence of, 12-26 

price of, 234-242, 245, 246, 248-250, 253-261 

production of, 48-63 

refining of, 75-89 

reserves of, 18-26, 325-326 

run to stills, 100, 101 

transportation of, 64-74 
Cunningham, R. W., 79 
Cushing Pool, 33, 238-239, 242 

Darnell, J. L., 46, 47 
Day, David T., 18 
Day, E. E., 50, 260 
Dean, E. W., 110, 113, 345 
Decline curves, 20, 45-47 
De Golyer, E., 324 
Demand, for fuel oil, 149-163 



364 INDEX 

Demand, for gasoline, 119-129, 285-288 

for kerosene, 135-141 

for lubricating oils, 171-182 

for natural gas, 196-198 
Depletion of oil properties, 45-47 
Dickinson, H. C, 293 
Diesel engines, 155, 159-160, 317, 347 
Dilution of motor-oil, 146, 181, 270, 348 
Dividends of oil industry, 9-11 
Doherty, H. L, 7, 10 
Drilling, cost of, 28, 241, 242 

methods of, 28 
Dry holes, 40 

Economic Geology, 29 

Economic organization of oil industry, 1-3 

Economic research, 358-359 

Economic statistics, 355, 356 

Edgar, E. Mackay, 351 

Efficiency, growing need for, 351-352 

of oil production, 343-345 

of oil refining, 345 

of oil transportation, 345 

of oil utilization, 346-348 
Ehlen, M. C, 101 

End-point of gasoline, 112-116, 276, 293 
Engineering statistics, 354 
Epstein, Max, 73 
Exports, 222-232 

distribution of, 228-229, 232 

economic function of, 223-224 

future of, 232 

growth of, 224-225, 230, 231 

of crude petroleum, 230 

of fuel oil, 223-231 

of gasoline, 223-231 

of kerosene, 223-231 

of lubricating oils, 223-231 

price of, 227-228, 245 

ratio to domestic production, 222-223 

trend of, 224-225, 230, 231, 232 

value of, 225-227 

Federal Trade Commission, 3, 4, 6, 10, 30, 31, 64, 68, 69, 70, 88, 216, 243 

Field, J. A., 40 

Fielder, R. E., 115 

Fieldner, Straub, and Jones, 297, 346 

Financial policy of oil industry, 9, 11 

Floyd, F. H, 113 

Fisher, Irving, 40 

Foreign countries, oil in, 22-26, 294, 312-319, 320-329 



INDEX 365 



Foreign oil deposits, bearing upon gasoline supply, 294 

Form value, 137, 335 

Franklin Automobile Co., 286-287 

Fuel oil, 75-89, 142-163 

automotive transportation use of, 159-160, 163 

California consumption of, 152-154 

composite character of, 348 

consumption of, 152-163 

demand for, 152-163 

domestic use of, 162 

effect of cracking upon, 273-274, 277-278 

efficiency of, as fuel, 152 

exports of, 148, 149, 223-231 

industrial use of, 154-155, 161-163 

marine use of, 153-157, 317, 347 

marketing of, 146 

price of, 148, 149, 227 

production of, 84-87, 143, 144, 147-152 

public utility use of, 158-159 

railroad consumption of, 155, 157-158 

relation to coal, 162 

relation to refinery practice, 76-82, 145 

relative importance of, 147 

sources of, 143, 145 

stocks of, 148-151 

trend of supply and demand, 148-149 

types of, 75, 142-143, 145 

value of, 107, 226-227 

waste of, 347-348 
Full utilization, 342-352 
Future production, estimating, 47 

Gantt, H. L., 102, 354 

Garfias, V. R., 71, 72, 73, 328, 329 

Gas oil, 146 

consumption of, 160-161 

price of, 307 

relation to city gas, 303-311 

relation to cracking, 272-274, 277-278, 303 
Gas rates, 306-308 
Gasoline, 75-89, 110-129 

automotive consumption of, 119-129, 286 

components of supply, 116, 290-294 

consumption by states, 126 

consumption factor for, 123-124 

cracked, 111, 272-274 

demand for, 119-129 

efficiency of utilization of, 346 

end-point of, 112-116, 276, 293 

enlarging the supply of, 290-299 

exports of, 120, 124, 125, 223-231 



366 INDEX 

Gasoline, from natural gas, 111, 207-211, 276 

losses in refining, 345 

natural, 110, 274-275, 290-292 

price of, 104-106, 120, 210, 227 

production of, 84-87, 117-122 

relation of kerosene to, 114-115 

relation to refinery practice, 75-83 

seasonal requirements for, 126-129 

stocks of, 121-122, 128-129 

trend of situation, 117-119 

value of, 107-109, 220-227 
Gathering lines, map of, 69 
Geology, application of, 34 
Geological Society of America, 34 
Gifford, George B., 78 

Gilbert C. G., 12, 18, 183, 311, 331, 335, 339 
Gillen, M. J., 123 
Greases, 192-193 
Gulf Coast field, 16, 21 

Harper, R. B., 301, 304, 305, 306, 307 

Harvard University Committee on Economic Research, 50, 259-260, 357 

Haskell, A. C, 358 

Healdton oil-pool, 69 

Heating standards for gas, 302-303, 309, 310 

Heavy-oil engines, 159-160 

Hill, H. H., 77, 110, 113 

Hudson River Vehicular Tunnel, 297, 346 

Huntley, L. G., 325, 326 

Huntley, Stirling, 325, 326 

Hydrocarbon compounds, 12, 164-165 

Hydrogenation, 273 

Idle refinery capacity, 100 

cost of, 102 
Illinois field, 16, 21, 22 
Illumination, development of, 130-131 
Illuminating oil, see kerosene 
Independent Oil Men's Association, 344 
Independents, 3, 213, 215 
Industrial structure, 356 
Initial production, 29, 41, 44 
Injection engine, 296 
Inspection laws, 220 
Integration, 3-5, 69-70 
Internal combustion engine, 288, 295-298 
International aspects of petroleum, 22-26, 312-319 

commercial control of, 312-314 

exports of petroleum, 222-232 

Mexico, 320-329 

oil in foreign countries, 22-26, 320-329 



INDEX 367 



International aspects of petroleum, political control of, 312-314 

problem of nationalization, 315-316 

relative to ocean shipping, 317-318 

rivalry between great powers, 316-317 

suggested policy of United States, 318 

trend of situation, 318-319 
Interstate Commerce Commission, 67, 74 
Investment in oil, 5-7 

Jobbing, 212-221 
Joint-production, 75-76 
Journal of Political Economy, 40 

Kerosene, 75-89, 130-141 

changing character of, 139-140 

consumption of, 135-137, 139-140 

demand for, 135, 140 

exports of, 130, 136-137, 223-231 

form value of, 137 

future of, 140-141 

price of, 136-137, 227 

production of, 84-87, 131, 132, 136-139 

relative importance of, 131 

relation to gasoline, 112-115, 132-135 

seasonal variation in production of, 133-135 

sources of supply of, 85-88, 132, 133 

stocks of, 136-139 

trend of supply and demand, 134-137 

value of, 131, 226, 227 

waning status of, 131 
Kettering, C. F., 282, 297, 346 

Labor costs, in drilling, 28, 241 

in production, 30 

in refining, 88-89 
Latin-American countries, oil in, 315-316, 320-329 
Lewis, J. O., 344 
Lifting cost, 30 

Lighting standards for gas, 301-303 
Lima-Indiana field, 15-16, 21, 22 
Little, Arthur D., Inc., 13 
Lloyd's Registry of Shipping, 70, 71, 156 
Losses, in oil production, 343 

in refining, 345 

in transportation, 345 

in utilization, 346-348 
Lubin. Isador, 20, 233, 239 
Lubricating oils, 75-89, 164-182 

automotive consumption of, 176, 177, 179 

blended lubricants, 168 

chemical composition of, 164-165 



368 INDEX 

Lubricating oils, cylinder stock, 81, 1G7, 173 
demand for, 171-182 
dilution of, 146, 181, 270, 348 
exports of, 171, 172, 170-177, 179, 223-231 
from asphalt-base petroleums, 77, 78, 109 
greases, 192-193 

industrial consumption of, 170-179 
motor-oil, 179-182, 348 
non-viscous neutrals, 167-168 
paraffin oils, 108, 173 
price of, 171, 172, 173, 227 
production of, 84-87, 170-173 
railroad consumption of, 170, 177-178, 179 
relation to crude petroleum, 77, 104-105 
relation to refinery practice, 70-82, 105-100 
seasonal character of automotive demand, 181-182 
stocks of, 171, 172, 174, 175 
types of, 75, 100-107, 173 
value of, 107, 220-227 
viscous neutrals, 168 
wastes of, 348 

McGuire, A, G., 213, 218 

Mabery, C. F., 12, 104 

Magnitude of oil industry, 4 

Manufactured gas, see city-gas 

Marine transportation, use of fuel oil in, 153-157, 103, 317 

Market analysis, 221 

Marketing, 212-221 

analysis of markets, 221 

investment in, 5-0 

of fuel oil, 219 

of gasoline, 215-219 

of kerosene, 219 

of lubricating oils, 219-220 

value of equipment, 5 
Mason, H. F., 95 

Master Car Builders' Association, 74 
Medicinal oils, 193 
Mexico, 23-25, 52-53, 320-329 

article 27 of Constitution of, 328 

bearing upon gasoline supply, 275, 294 

character of oil in, 320-327 

estimated oil reserve of, 23, 25, 325-326 

exports of oil from, 321 

laws affecting oil in, 327-329 

map of oil-pools in, 323 

nationalization of oil in, 310, 327-328 

occurrence of oil in, 322-324 

oil-fields of, 320-323, 325-320 

production of oil in, 52, 53, 321-323 



INDEX 369 



Mexico, refinery yields from oil from, 327 

relative increase in production of, 51-53, 321, 322 

salt water encroachment in, 324-325 

taxation in, 328-329 

unmined supply in, 23-25, 325-326 
Midgley Gas Engine Indicator, 282 
Midgley, Thomas, Jr., 282, 297 
Mid-Continent field, 17, 21, 22 

cost of drilling in, 28, 241, 242 

dry holes in, 40 

production cost in, 30 

production in, 42-43 

refinery types in, 78-79, 92, 96-97 

relative importance of, 58, 59 

trend of drilling in, 44-45 

wells in, 41 
Mining and Metallurgy, 325, 326 
Mixed gas, 301, 310 
Mixed-base crudes, 13, 77-78, 164-165 
Monthly Labor Review, 233, 237, 253 
Motor-fuel, see motor-fuel problem, gasoline, kerosene 

alcohol as, 282-283 

benzol as, 280-282 

blends, 279-284 

demand for, 285-288 

problem of, 270, 280-282, 285-299 

supply of, 288-289 
Motor-fuel problem, 270, 280-282, 285-299, 346-347 
Motor-gasoline, 112-117 
Motor-oil, 179-182, 348 

consumption of, 180 

dilution of, 181 

seasonal demand for, 181-182 

See lubricating oils 
Motor locomotives, 158 
Motor ships, 155-156 
Motor vehicles, production of, 264, 265 

registration of, 263, 264, 266, 268, 286, 287 
Moyer, W. I., 199, 201 
Multiple production, 1, 183, 341 
Municipal fuel plants, 281, 332-333 

National Gas Association of America, 199, 201, 204 
National Petroleum News, 7, 42, 233, 253 
National Petroleum War Service Committee, 239, 247 
Natural Gasoline Manufacturers, 111 
Natural gas, 195-211 

acreage, 197 

appliances, 205 

association with oil, 13 

carbon black from. 206-207 



370 INDEX 

Natural gas, compressors, 201-202 

conservation of, 205-206 

consumption of, 196-198 

gasoline from, 111, 207-211 

peak load in use of, 202-203 

price of, 202-204 

production of, 198-200 

relation to city gas, 195 

rock pressure, 199-200, 201 

transmission of, 200 

utilization of, 202 

value of, 197 

waning supply of, 196-197, 333 

wastes of, 203-205, 344, 348-350 

well data, 199 
Natural gasoline, 275, 277, 290-292, see natural-gas gasoline 
Natural-gas gasoline, 207-211 
Naval Annual, 156 
Naval use of fuel oil, 157, 317 
Neutral oils, 75, 166-167 
New England, fuel problem in, 162 
Northrop, John D., 312, 313 

Occurrence of petroleum, 13, 323-324 

Office of Farm Management, 266, 268 

Oil, see crude petroleum 

Oil and Gas Journal, 38, 39, 40, 41, 326 

Oil gas, 301 

Oil, Paint, and Drug Reporter, 233 

Oil Weekly, 91, 93, 94, 102 

Oil-coal, 340-341 

Oil-field development, 27-47 

competition in, 31-34, 343 

efficiency of, 342-345 
Oil-fields of United States, 13-18, 21 

comparative importance of, 57-58 

production of, 54-57 
Oil-pools, list of important, 13 
Oil-reserves, estimates of, in foreign countries, 22-25 

in Mexico, 23, 325-326 

in United States, 18-21 
Oil-shale, 336-341 

character of, 337 

distribution of, 337-338 

domestic development of, 339 

foreign development of, 338-339 

future of, 339-341 

products yielded by, 338-339 

relation to coal, 334-335, 337, 340-341 

Scottish, 338-339 
Oil-tankers, comparison with merchant tonnage, 70 



INDEX 371 

Oil-tankers, data on, 70-73 

growth in number of, 71 

investment in, 6 

time of voyage of, 72 

tonnage of, 71, 73 
Oil-wells, completions by years, 38 39, 42, 43 

cost of drilling, 241, 242 

distribution of, 37 

in Mid-Continent field, 41 

in United States, by states, 35, 36, 38 

non-productive, 40 

relation to production, 42-43 
Old production, decline in, 27-29, 42-43 

Paraffin-base crudes, 12-13, 77-78, 81, 164-165, 291 

Paraffin oils, 75, 166-167 

Paraffin wax, see wax 

Peak-load problem, for gasoline, 126-129 

for heat and power, 334 
Persons, Warren M., 259 
Petrolatum, 191-192 
Petroleum industry, assets of, 7 

becoming a transportation industry, 271 

capital absorbed by, 9 

capitalization of, 7-9 

chart of, 2 

economic organization oi, 1-4 

profits of, 10-11 

relation to coal industry, 330-335 

value of output of, 107-109 
Petroleum products, methods of refining, 75-83 

production of, 85, 86 

rank of, 89 

varieties of, 75 
Philadelphia Company, 199-200 
Pig iron, relative production of, 49 
Pipe-lines, 1, 64-70 

efficiency of, 345 

estimated value of, 4, 5, 64 

gathering lines, 69 

magnitude of, 64-70 

map of, 66 

tariffs, 68 
Plan of oil-price stabilization, 239, 247 

Pogue, J. E., 12, 18, 20, 183, 233, 239, 279, 285, 311, 331, 335, 339 
Polakov, W. N., 102 
Political control of oil deposits, 312-319 
Population, relative growth in, 49 
Premiums for crude petroleum, 237 
Prices, 104-109, 233-252, 253-261 

effect of Cushing pool upon, 238-239, 242-243 



372 INDEX 

Prices, effect of war upon, 239, 243-244, 247 

explanation of price calculations, 233 

index numbers of, 234-237 

of crude petroleum, 234-242, 245, 246, 248, 249, 250, 253-261 

of exported oils, 227-228, 245 

of fuel oil, 227, 234-217, 245-247 

of gasoline, 227, 234-237, 238, 241-244 

of kerosene, 227, 234-237, 244-245 

of lubricating oils, 227, 234-237, 247-251 

relative to consumption, 253-255 

relative to cost of drilling, 241, 242 

relative to production, 253-261 

secular trend of, 257-261 

trend of, 104-105 

types of, 105-106 
Production, of petroleum products, 84-88 

See fuel oil, gasoline, kerosene, lubricating oils, petroleum 
Production of crude petroleum, 1, 4, 5, 48-63 

by fields, 51, 55, 56, 57, 59 

competition in, 31-34, 343 

decline in, 45-47 

investment in, 5-7 

relative to consumption, 58, 60, 61-62 

relative to country's growth, 49 

relative to drilling, 44-45 

relative to price, 253-261 

seasonal variation in, 260 

trend of, 48-63 
Profits of oil industry, 10-11 

Ratio chart, advantages of, 40 
Refineries, by states, 91-92 

capacity of, 90-103 

complete, 79-82, 95 

cracking plants, 82, 83 

growth of, 92, 99-100 

intermediate, 79 

investment in, 6 

location of, 90-91, 96-97 

sizes of,- 90-93 

skimming plants, 77-78 

topping plants, 82 

trend of types, 83 

types of, 77, 78, 93-97 

yields from, 78 
Refinery capacity, 90-103 

classified by types, 94, 95, 96-97 

growth of, 99-100 

location of, 90-91 

proportion utilized, 100-101 

relation to storage, 94-95, 98-99 



INDEX 373 

Refinery practice, on Mexican oil, 327 

outline of, 80-81 

trend of, 75-89 
Refining, efficiency of, 345 

methods of, 76-83 

outlook for, 104-109 
Registrations of motor vehicles, 263, 264, 266 
Requa, M. L., 31, 32, 317 
Reserves of oil, abroad, 22-26, 325-326 

control of, 313-314 

in Mexico, 325-326 

in United States, 18-21, 290, 306 
Review of Economic Statistics, 259, 260, 357 
Richardson, G. B., 153 
Rittman, Jacobs, and Dean, 113 
Rocky Mountain field, 16-17, 21, 22 
Ross, Victor, 5-6 
Russia, oil-production of, 52, 53 

Salt-water, encroachment of, in Mexico, 324-325 

relation to oil, 13 
Seasonal variation, in gasoline consumption, 126-128 

in motor-oil consumption, 181-182 
Shale-oil, 334-335 

See oil-shale 
Shale-oil distillate, 295 

See oil-shale 
Sievers, E. G., 206, 207, 211 
Size, of oil companies, 3-4 

of petroleum industry, 4-5 
Skimming plants, 77-79, 95-97, 145, 166 
Smith, George Otis, 20 
Smith, N. A. C., 113 

Smithsonian Institution, 195, 201, 339, 351 

Society of Automotive Engineers, 19, 76, 115, 279, 282, 285, 297, 324, 345, 346 
Solid fuel obsolescent, 335 
Sparrow, S. W., 293 
Sperlin's Journal, 351 
Spurr, J. E., 312 

Standard companies, 3, 70, 215, 217, 218 
Standard Oil Company, 3-4, 213-215 

of New Jersey, 3, 194, 215 
Statistical' methods, 353-359 
Statistics, accounting, 353-354 

economic, 355 

engineering, 354 

function of, 353-360 
Stebinger, Eugene, 23, 24, 25, 26 
Stewart, Walter W., 49, 50 
Stocks, of asphalt, 188-189 

Of coke, 190-191 



374 [NDEX 

Stocks, of crude petroleum, 60-62 

of fuel oil, 148-151 

of gasoline, 119-122, 128-129 

of kerosene, L36-139 

of lubricating oils, 171-17"), 17 

of wax, 185-186 
Stratford, C. W., 66, 76 
Supplementary motor-fuels, 279-284, 291-295, 298 

See coal refining, ail-shale 
Swift, F. W., 28 

Tank cars, 1, 73-74 

number of, 74 
Tank farms, 67 
Tankers, see oil-tankers 
Technology of oil production, 28-29 
The Nineteenth Century, 350 
Thermal efficiency, 296-297, 346 
Tide Water Oil Company, 80, 81, 152 
Topping plants, 82, 95-97, 145 
Towl, Forrest M., 65 
Tractors, distribution of, 26S 

production of, 265 
Transportation, 1, 4, 5 

efficiency of, 345 

investment in, 6 

of crude petroleum, 64-74 

of natural gas, 198, 200-202 
Trends, of refinery output, 83, 84 

of refinery types, 83 
Trucks, distribution of farm-owned, 266 

production of, 264, 265 

projected curve of, 287 
Types of petroleum, 12-13 

Unmined supply of oil, in foreign countries, 22-25 

in United States, 18-21, 290, 306 
U. S. Bureau of Foreign and Domestic Commerce, 157, 228, 231, 328 
U.S. Bureau of Labor Statistics, 233, 234, 235, 236, 237, 251, 253 
U. S. Bureau of Mines, 47, 77, 91, 92, 93, 94, 95, 96, 100, 101, 102, 112, 113, 115, 

122, 131, 138, 142, 166, 174, 184, 186, 188, 189, 190, 192, 194, 205, 220, 289, 

297, 312, 338, 344, 345, 346, 347, 350, 357 
U. S. Bureau of Standards, 300 

U. S. Census of Manufactures, 131, 142, 173, 184, 189, 192, 193, 252 
I . S . Department of Agriculture, 266, 268 

U.S. Fuel Administration, 87, 89, 204, 213, 214, 218, 220, 223, 239 247, 249, 
U. S. Geological Survey, 18, 19, 21, 22, 23, 24, 25, 32, 33, 34, 35, 36, 37, 38, 42, 43, 

52, 54, 56, 61, 66, 153, 158, 159, 187, 196, 197, 201, 206, 207, 208, 209, 210, 

211, 252, 289, 306, 336, 357 
U. S. National Museum, 12, 183, 195, 204, 206 
U. S. Shipping Board, 156-157 



INDEX 375 

U. S. Treasury, 47 

Value, of crude petroleum, 251, 252 

of fuel oil, 107, 109, 251, 252 

of gasoline, 107, 109, 251, 252 

of kerosene, 107, 109, 251, 252 

of lubricating oils, 107, 109, 251, 252 

of mineral oils, 107, 109, 251-252 
Van Hise, C. R., 203 

Wadsworth, J. M., 347 

War Industries Board, 123, 233 

Wastes, 342-352 

Wax, 184-187 

Wealth of country, 5 

Western Society of Engineers, 301 

White, David, 19, 23, 26, 316 

Wild-catting, 27, 343 

World, oil production of, by countries, 52, 53 

oil resources of, 22-26 
Wyer, S. S., 195, 199, 200, 201, 202, 203, 204, 205, 206, 349, 350 



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